Friday, October 26th, 2018
On 25 Jul 2018, The BoE said it could assist merchants transacting through Blockchain tech to complete payments through a payment scheme it plans to launch in future.
As we speak, the Bank’s payment service— the real-time gross settlement (RTGS) system – is in its advanced stages and will soon provide businesses with the cheapest merchant services. Earlier this year, it went through a ‘proof of concept’ test which entailed investigating whether the upgraded RTGS service could “show and consume up-to-standard forms of cryptographic proof.”
According to the Bank of England, some of the companies that took part in the trial “were able to link” with the RTGS test environment with the help of distributed ledger tech (DLT), or an application programming interface (API) to conclusively settle Blockchain transactions.
The companies BoE worked with during the test included Token, Clearmatics, Baton, and R3.
The test involved the participants playing the role of a payment scheme, and equally, a member of RTGS using that scheme. Subjects could easily transfer finances between accounts, as well as finance and definance collateral accounts. During financing and definancing, care was taken to make sure balances in the payment system, and the RTGS was accurate. Next, payments were made in the subject’s payment scheme, causing net exposures among RTGS members that could not surpass the amount of funds held by those RTGS members. The subject then received a message of settlement from the payment scheme to settle net exposures.”
Moving forward, the Bank also announced plans to “investigate” the possibility of further interaction between the real-time service and DLT.
“Our programme will investigate whether if the upgraded RTGS service can show and consume suitable forms of cryptographic proofs. However, this won’t come early in the programme, but the Bank intends to look into how cryptographic proofs could be incorporated in the design of their RTGS service. The BoE will track changes in methodology and evolving tech for cryptographic proofs.”
According to Charlie Clarence-Smith, an attorney at Pinsent Masons, the BoE has made “an ambitious move” to improve their real-time system which transfers large amounts of funds from bank to bank and “make it inter-operable with DLT.”
“However, it should stay clear that the BoE is not planning to replace RTGS with DLT. Rather, it is examining the possibility of integrating these two platforms. Moving forward, the DLT may mature enough to be the pillar for the future RTGS, but that may take some time to achieve.”
The Bank’s move to upgrade its RTGS payment system was prompted by a major outage it suffered in 2014. In Oct. 2014, The BoE’s RTGS service experienced a nine-hour outage causing interruption to the processing of an entire 142,759 CHAPS payments (worth a whole £289.3 billion).