Payments and blockchain: Piltoville

Payments and blockchain: Piltoville

The payments industry went just a bit blockchain bonkers at this year’s Sibos. Distributed ledger technology (DLT) was a hot topic throughout the week. This was quite astounding given there are very few examples of working blockchain or DLT use cases; most of the initiatives under way are proofs of concept.

Among these is work undertaken by Rabobank and D+H, which was announced during the event. The two organisations combined D+H’s payments services hub with a multi-chain blockchain solution from UK-based blockchain technology company, Coin Sciences. Cross-border payments were executed in near real-time for the bank, using DLT.

“Rabobank has been able to validate the processing of blockchain payments in its own environment,” said Heimen Schuring, head of channel support and payment engine at Rabobank. “We have seen meaningful results that tell us that further exploration of blockchain functionality is worthwhile.”

The solution successfully addressed three areas:

  • Immediacy – Completed end to end transactions in near real time.
  • Reachability – Sent funds to any of the bank’s closed user group members.
  • Probability – Both payer and payee bank were able to agree to the payment before it was committed, preventing non-settlements or rejections after payment processing.

Rabobank has been investigating blockchain since 2014 and sees this technology as a “game changer” for many financial use cases. In addition to cross-border payments, the bank is investigating the use of blockchain for other ongoing projects, including payments through the internet of things, know your customer registration and trade finance documents. Rabobank is a partner of blockchain accelerator Nexuslab.

Meanwhile, CLS Group announced it had started work on a payment netting service, CLS Netting, that will use existing message protocols and DLT. The service will be open to all FX market participants, not just CLS members. Scheduled to go live in 12-18 months, CLS Netting will provide the FX market’s first standardised payment netting process for trades settled in 24 currencies (18 CLS currencies and six non-CLS currencies).

A number of banks have agreed to support CLS Netting, including Banco Actinver, Bank of America, Bank of China, Bank of Tokyo-Mitsubishi UFJ, Citibank, FirstRand, Goldman Sachs, HSBC, Intesa Sanpaolo, JPMorgan Chase, Morgan Stanley, Neuberger Berman and Northern Trust.

DLT and blockchain are particularly attractive to institutions involved in trade finance, which remains a heavily paper-based process involving much manual processing.

Microsoft and Bank of America Merrill Lynch (BAML) announced a collaboration on blockchain technology for trade finance. The two companies will build and test the technology, create frameworks and establish best practices for blockchain-powered exchanges between businesses, customers and banks…

This is an excerpt. The full article is available in the October 2016 edition of Banking Technology.