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RBS tests claim blockchain could replace UK’s Faster Payments bank clearing scheme

Researchers at the Royal Bank of Scotland investigate the use of distributed ledger technology for bank clearing systems

A team of researchers at Royal Bank of Scotland (RBS) claims to have demonstrated that blockchain technologies could support a new banking industry clearing system similar to the UK’s existing Faster Payments scheme.

In a technical paper published online, the innovation engineering team at RBS said it had built a clearing and settlement mechanism based on the Ethereum distributed ledger, codenamed Emerald.

The aim of the project was to see whether blockchain could be used for an international clearing system, where there is no central authority to regulate payments. To achieve this, RBS attempted to replicate a domestic clearing system – such as the UK’s Faster Payments – using a blockchain distributed ledger.

The researchers concluded that Ethereum “can scale to payment volumes consistent with a domestic payment system”.

The RBS technical paper said: “The test results evidenced a throughput of 100 payments per second, with six simulated banks, and a single trip mean time of three seconds and maximum time of eight seconds. This is the level appropriate for a national level domestic payments system.”

Many banks are investigating blockchain as a potential way to cut the costs of their hugely expensive payment processing infrastructure. Blockchain is a peer-to-peer technology that uses its distributed ledger and advanced encryption to guarantee the provenance of every transaction. For banks, that provenance is currently provided by cumbersome and bureaucratic back-office systems.

The RBS paper quoted research by blockchain software provider Ripple, which estimated that use of distributed ledgers in cross-border clearing and settlement could save $50-60bn from industry costs of $150bn.

“The current cross-border clearing and settlement value chain is costly, inefficient and not transparent,” the paper said. “A distributed ledger solution (blockchain) applied to the cross-border clearing and settlement process is expected to enhance visibility, minimise settlement risk, lower costs and increase transaction speed.”

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The tests were carried out using Google’s Cloud Platform, working with supplier GFT Technologies, running Google’s Kubernetes container management software. RBS hopes to release the project as open source in the future.

RBS has been one of the pioneers in testing blockchain, and last year told Computer Weekly about plans to develop payment-related products using the technology.

Elsewhere, Barclays Bank recently tested the use of blockchain technology to complete a large trade finance agreement, while Santander is using blockchain to underpin its latest app, which enables customers to make international payments 24 hours a day.

The UK government is also investigating uses of blockchain in the public sector. For example, the Department for Work and Pensions has trialled distributed ledger technology with benefit claimants using a mobile app to track welfare payments.

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