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Banks remain wary of blockchain-based electronic payment networks

Issuing time:2018-09-30 10:36

For all the marketing around B2B electronic payment platforms, many of which are based on blockchain, there are few actual users of the technology – even though it  purports to reduce the time needed to send, clear and settle global payments from days to seconds.

The technology enables the representation of digital currency (a "stable coin") backed by traditional fiat money, or the creation of cryptocurrencies (a new asset class) such as bitcoin or Ethereum, Ripple's XRP or Stellar's Lumen, enabling new sources of liquidity. Those digital assets are transmitted across a decentralized network where transactions are recorded on an immutable blockchain ledger.

"The revolution we're seeing is from a cross-border perspective," said Fabio Chesini, a Gartner research director for transaction banking. "If you think about a cryptocurrency like a bitcoin, when you move money from point a to point b, you're actually encapsulating the message and the settlement in the same transaction. That's possible because a cryptocurrency is the first native digital asset ever created, which means an asset that has no liability from somewhere else."

Global Payments Market cryptocurrency
Goldman Sachs & Co.

PNC and RippleNet

For example, PNC bank last week announced its PNC Treasury Management division is now a member of RippleNet, a blockchain-based network for transmitting real-time, cross-border payments. Pittsburg-based PNC is the ninth-largest U.S. bank for assets and the 71st largest bank globally.

PNC is just one of more than 100 firms to join Ripple's global payment network;  members now include banks, payment providers and remittance companies.

"As the global economy becomes increasingly digital, the need for real-time payments globally is critical," Chris Ward, executive vice president for PNC Treasury Management, said in a statement. "We are focused on providing our clients with capabilities that enable making secure digital payments in an instant, whether they are sent across the street or across the world."

RippleNet allows financial services firms to use either government-backed currency or its own XRP cryptocurrency for payments. Ripple claims its network can settle a cryptocurrency transfer in four seconds, compared to Ethereum, which it claims takes two minutes or bitcoin, which can take more than an hour. Traditional settlements that use banking networks and clearing houses can take from three to five days.

However, International cash management banks, such as Citi, HSBC and Bank of America, have their own payment networks from which they receive transaction fees and other revenue, leaving some to ask why they would cannibalize their own business by using a third-party network.

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