Faster Payments using Blockchain Technology

I had the opportunity to lead a Blockchain initiative a few years ago using the Ripple Consensus Ledger. That trial ran for about three months and involved sending money out of Australia into New Zealand and Fiji. That certainly showed us how fast this blockchain stuff could really be, but it also reminded us that a payment is more than just a payment instruction.

Fast International Payments

There are Four things (IMHO) that can slow down an international payment.

1. Accuracy of the Payment Instruction
2. Payment Liquidity.
3. Regulatory Compliance.
4. The Last Mile (and First Mile).

You need to have all four components working together to have a faster payment.

In general the Cryptocurrency and blockchain solutions do the first part really well. They are really good at sending fast immutable payment instructions. The other parts … not so good.

Accuracy of the Payment Instruction

How fast a payment instruction can get from the Sender to the Receiver is the first step.

Basic information, like the Sender and Receiver account details need to be known by both parties. Depending on where the payment is going you may also need additional information with the payment. Things like Invoice numbers and purpose of payment are becoming mandatory data requirements in some jurisdictions.

In general, the more sophisticated Blockchain solutions handle this part quite well. They will usually use a smart contact or real-time validation to enforce a valid payment instruction.

Payment Liquidity

Unless you are happy to get paid in a BTC, XRP, ETH or some other Cryptocurrency, you will need to get converted into AUD (or your choice of Fiat currency)

Blockchain technology does trust-less cryptocurrency very well. If you expect your beneficiary to get USD (or EUR …), then that means you need a trusted counter-party. A counter-party is someone that is happy to provide your beneficiary cash at the other end of the payment.

Regulatory Compliance

This is one of the areas which is most underdeveloped in the blockchain space. Most blockchain solutions appear to just ignore this completely. They focus on how fast their block chain works, but unless you tick your compliance boxes you may not be legal.

There are strict requirements for payment screening and reporting set down by Austrac. This is a gap in most Blockchain technology. We can’t really say that a payment is complete until all the screening and reporting is completed.

We are starting to see some progress though, most notably with the R3 consortium. R3 has been setup specifically as a playground for banks to get used to Blockchain tech. R3 are building in from the ground up participation by the Regulators and Reserve banks.

The last mile

Putting a blockchain solution in to solve your international payments problems can be like having a supper fast highway built between to cities. To get to the highway from your place, however, you need to drive for an hour to get to the on-ramp. Then you are stuck in traffic at the end trying to get off.

The same with payments. The instruction goes very fast between the two international parties, but it then needs to change tracks and get delivered via the domestic Payment network.

This has just made the transaction a more complicated. We now have to take the payment off the blockchain and (ideally) put it onto a Faster payment network (if available).

This is a GAP in Bockchain solutions , so we need to build this into the end to end payment experience for the customer.

Swift Payments get an Overhaul

Competition is a great thing.

For the last 40 plus years, if you needed to send an international payment, you would use SWIFT (Telegraphic Transfer). The problem with SWIFT is that it is not Swift (ie Quick).

A payment could take a number of days to reach its destination. This is especially difficult for multi-national companies with International operations or trying to have a consolidated Treasury.

SWIFT have finally woken up to the Blockchain threat and have come up with GPI (Global Payments Initiative). GPI addresses both the Track ability of the payment and the Speed of the payment transfer.

More on SWIFT and GPI in a future article.

For business, this is a great thing. Whether the underlying payment rail is a shiny new blockchain payment or a overhauled SWIFT network, businesses will enjoy faster, cheaper International Payments.