Banks begin blockchain payment integration

Kimberley Long
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Banks are taking tentative steps to integrating blockchain technology, but so far they have focused on following established payment processes.

Barclays announced last week it was working with Circle, a US app, to facilitate payments between sterling and US dollars on the blockchain

The UK’s Financial Conduct Authority (FCA) has granted the service a licence – the first of its kind to be granted in the country.

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Marieke Flament,

Marieke Flament, managing director, Europe, at Circle, says: "To operate in the UK it is necessary to partner with a bank. It is a joint relationship with Barclays. We see them as innovative, and they want to work with a product that is innovative."

While it is a significant step, it is not unexpected. 

Kevin Curran, senior member of the Institute of Electrical and Electronics Engineers (IEEE), and reader in computer science at Ulster University, says the development was going to happen eventually.

"It was really just a matter of who would be first to be granted an e-money licence by the FCA for a digital currency company," he says. "It just happens to be Circle."

Circle operates on the model of a hybrid fiat-digital currency. Transactions can be made between sterling and dollars, passing along the blockchain without any fee being charged. The next step is to allow for payments to be made in euros.

Flament at Circle says: "Barclays is providing Circle with treasury account and settlement infrastructure to enable UK consumers to transfer funds through Circle and store pound sterling with Circle. Specifically, we are a client of their fintech commercial banking group."

For the end-user, the process works like a card payment, using the details of their bank account. They only need to have the mobile phone number or the email address of the recipient to make a payment. The recipient needs to use a blockchain-based app to receive the payment, but it does not have to be Circle.

Removing risk

While using the blockchain’s digital channels, the funds remain as fiat currencies, removing the risk of the fluctuating bitcoin value. The FX rates are set by Circle.

"Circle has its own internal trading operations and works with several banking partners to get access to very competitive rates," says Flament. "When converting from one currency to another, customers are quoted a competitive price that reflects the interbank mid-market rate plus a small spread. This spread is generally tighter than those offered by similar online exchange and remittance services."

Although it is not a fully-fledged bitcoin service, the IEEE's Curran says this is the first step towards demonstrating to the general consumer what it is and how it works. 

He says: "At the moment, it is not quite ready for the mass market. Buying, selling, storing of bitcoin is still beyond what we can reasonably expect the public to understand. That should change however with new layered solutions which make it easier to buy and use bitcoin. 

"Circle is just one instance of making it easier to transfer money over bitcoin."

There are also moves to make systems available for corporate-focused payments. BNP Paribas (BNPP) is in the process of developing a platform with crowdfunding investment platform SmartAngels. The aim is to make the platform live by the end of the year.

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Philippe Ruault, BNPP

Philippe Ruault, head of clearing and custody solutions at BNPP, says: "As the trust bank, the money that flows on the blockchain sits on the BNPP books. Investors in the cash accounts credit the blockchain, which passes on to the cash accounts. The legacy payment is there for the cash, and also for the tax requirements."

Focused on higher-value payments from established investors, the France-based SmartAngels moved towards blockchain technology to enable a faster expansion of the business. For the BNPP’s part, there are benefits to working with an established start-up.

"On the bank side, there is interest in getting the business knowledge from their part as well," says Ruault. "SmartAngels will also bring some corporates in initially on the pilot."

What the platforms so far have in common is developing a quicker and cheaper way of facilitating transactions and updating existing infrastructure, rather than a revolution in the banking environment.

Jean-Francois Denis, deputy head, cash management at BNPP, says: "International credit transfers in currency can be long and sometimes unpredictable in terms of duration and fees applied by the parties in the chain. The new players are trying to solve the problems of the legacy situation."