In what it terms a “first,” D+H, the financial technology provider, recently announced it now applies distributed ledger, or blockchain, technology to its global payment services hub.
The announcement follows a year’s worth of increasingly heated discussion about just how blockchain technology could actually be put to good use in financial services. Blockchain is the basic technology behind the emergence of cryptocurrencies which generally have garnered weak acceptance, due mainly to the murky regulatory environment around them, says Steve Murphy in an interview with Banking Exchange magazine. He is director of Mercator Advisory Group’s Commercial and Enterprise Payments Advisory Service.
However, due to “all the money being poured into venture capital” related to blockchain development, he says, it “seems to be opening the doors to commercial applications.”
Secure and immediate
In D+H’s case, blockchain technology is an extension of the company’s Global PAYplus solution, which helps financial institutions manage various payment types and currencies in one integrated system, domestically and across national borders. The blockchain application is available to any D+H client with access to that platform.
The advantages that blockchain provide include both security and instantaneous exchange of value, says Moti Porath, executive vice president, Global Pre-Sales, D+H, in an interview with Banking Exchange.
“The security is very high. More important, [blockchain] makes immediate payment a reality end-to-end,” says Porath.
He stresses the private nature of this particular application, as opposed to cryptocurrencies which, by definition, exist in publicly accessed networks.
“There is a finite set of participants and they are the only ones who can see the activity,” Porath says.
As to the announcement being a “first,” Porath explains: “There are many ways to implement blockchain technology. We haven’t seen anyone who actually took a working payments hub … and interconnected multiple banks into a private network that is using blockchain to perform credit transfer.”
Several general classes of banks would be interested in such a system, he says. One would be large multinational banks that would want to make exchanges of value between their international branches more efficient. Another would be groups of banks that would want to unite into a private network in order to exchange value in an efficient way. Yet another would be mid-sized banks that would like to develop an immediate-payment network.
In October, D+H partnered with Ripple to integrate Global PAYplus with Ripple’s distributed ledger technology. In its recent announcement, D+H says it intends to explore new use-cases in partnership with Ripple and similar organizations.
Looking for use cases
Mercator’s Murphy recently published a report speculating on future use-cases for blockchain in corporate banking. He notes that two consortiums were launched last year with this exact purpose in mind—how to apply blockchain technology.
One is the R3CEV consortium, which includes 42 banks among other entities, and the other is Hyperledger, led by the nonprofit Linux Foundation.
Through his research, Murphy pinpoints three general use-cases such blockchain-related consortiums might pursue: merchant services, foreign currency exchange, and international trade finance.
D+H’s recent announcement “falls into this category,” Murphy says.
In a recent whitepaper, D+H delineates “five things blockchain must get right to realize its full and transformative potential.” Briefly, they are:
1. It needs to find the specific niche or niches where it is obviously a superior solution to the technologies that have preceded it.
2. The dominant technology, or alignment of technologies and use cases, has to emerge.
3. It has to retain enough of its disruptive potential when all the regulatory and industry requirements are added in.
4. It must be able to scale to handle the volumes and speeds required by the financial services industry.
5. The evolution of blockchain in banking needs to be aligned with banks’ time scales and perspective.
For this initial foray into applying blockchain technology, Porath says, it’s “another mechanism to future-proof your payments investment.”