Fintech startup Blockchain Technology Ltd (BTL) Group sees major opportunities for the blockchain in removing inefficiencies in inter-bank payments and settlement, bypassing the notoriously laborious process of using intermediaries, but can significant savings be made? Robin Arnfield investigates
Canada-based BTL argues that blockchain technology will enable financial institutions to make significant savings ‘by removing the need for third-party intermediaries which add time, direct costs and risk to each settlement, and reducing settlement from three days to 10 minutes’.
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“Using the blockchain in the wholesale part of a bank for settlements can be very effective, as it is slow and laborious using intermediaries to transfer money between banks,” Christie Christelis, president and CEO of Canada-based Technology Strategies International tells RBI.
Interbit
Founded in 2015, BTL went public on the Toronto Stock and Venture Exchanges in November 2015.
BTL developed the Interbit cross-border settlement platform, which can be used for multiple industries including energy trading, banking and insurance.
Interbit was initially based on Ethereum, a blockchain-based public distributed computing platform for smart contracts – computer protocols enabling contracts to be executed automatically without the need for third parties such as lawyers to verify or enforce them. However, BTL decided to build Interbit using entirely its own software resources.
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By GlobalData“We’ve worked with some open-source solutions such as Ethereum in the past,” says Guy Halford-Thompson, BTL’s CEO.
“But, for us to go after the FIs, we needed a platform that was very scalable and enabled us to strictly control privacy within the network. We couldn’t find anything in the blockchain space that would allow us to scale up and lock down data so no-one could see the transactions going on. Interbit is built with privacy, security and scalability in mind so that we can scale to the FIs’ needs.”
BTL does not operate its own blockchain network, unlike Ripple which has built a blockchain-based real-time gross settlement network currently being tested by R3’s consortium of international banks. Instead, Interbit member banks license BTL’s API and run individual nodes and broadcast transactions to their own network, using smart contracts for multilateral netting and clearing and multilateral credit limits.
“Our privacy rules enable us to restrict the private data to a specific network for the banks that are creating and using that data,” says Halford-Thompson.
Regulators have read-only, real-time access to Interbit transactions to monitor risk, BTL says. Interbit can be used for cross-border and cross-currency bank-to-bank payments and settlement, correspondent banking, P2P and B2B remittances, micro- and macro-payments.
Projects
“We are doing a few projects with Canadian banks, and we have partners that are working with Canadian banks,” says Halford-Thompson. “But we can’t disclose the names of banks we are working with. Most of our focus is in Europe through our office in London, and the financial projects we are doing in the UK are our lead projects at the moment.”
BTL has a consumer-facing business through XapCash, the blockchain-based remittance operation which it bought in March 2016 and which is currently testing P2P remittances from Canada to the Philippines via Interbit. However, BTL’s real focus is on licensing its Interbit platform to large companies, says Halford-Thompson.
“The reason we initially focused on remittances is that, when we started in 2015, the banks weren’t yet interested in the blockchain,” he says.
Halford-Thompson says BTL is careful not to claim that Interbit is a replacement for SWIFT. “We see it is an alternative for certain specific cases, but SWIFT is going to be around for a long time to come,” he says.
Visa Europe
In September 2016, BTL and Visa Europe Collab, Visa Europe’s innovation hub, announced a proof-of-concept pilot to test potential applications for blockchain technology in the financial services ecosystem.
“The project will use Interbit to explore how blockchain-based settlements can reduce the friction of domestic and cross-border transfers between banks – reducing cost, settlement time, credit risk, and using smart contracts to automate many of the regulation and compliance requirements of domestic and international transfers,” says Hendrik Kleinsmiede, Visa Europe Collab’s co-founder and innovation partner.
Visa Europe has invited a small number of European banks to participate in the project, which will run until the first quarter of 2017.
“Participating banks will be able to connect to the network and send funds across multiple currencies,”said Kleinsmiede.
“Through the use of smart contracts and blockchains I believe we can create a fast, compliant and low-cost interbank payment and settlement service.”
Industry view
“We think distributed ledger technology – which is what I prefer to call the blockchain – has significant potential for as disruptive force in payments systems,” says Jan Pilbauer, executive director for modernisation and CIO at Payments Canada. “It has the potential to revolutionise any transaction system.”
Payments Canada is working with Canada’s central bank, the country’s five largest banks, and the R3 consortium on a blockchain interbank payments proof-of-concept trial called Project Jasper.
“From the project we have concluded that right now blockchain technology as a part of a core clearing and settlement system is not ready for production yet. Payments Canada processes C$3m ($2.25m) a second and we don’t want to introduce any risk into that.”
“Initially, the blockchain had too close an association with bitcoin and this had positive and negative connotations,” says Jason Davies, MasterCard Canada’s head of digital payments.
“The blockchain has now grown up and is being seen as a new internet protocol. MasterCard is interested in the blockchain and we’re working on some new proofs of concept for what it can be used for. I think the first applications might be in core banking transactions rather than in payments.
“My personal view is that it is early days for the blockchain and we will go through a lot of experiments before we see it adopted as a new platform,” Davies concludes.
