Community

I concur with Barrie's view, but the metaphor is fundamentally incorrect as well.

There is no such thing as a bitcoin or an ethereum etc, there is no digital item you can find or identify, for example a unique character string to represent individual bitcoins or ethereum.

Instead, on these blockchains, there are transactions associated (digitally signed) with private keys, and each private key has a net balance, a number, of the buy and sell transactions for that private key, which is typically calculated by a wallet but not stored as a balance (however, there are blockchains such as the XRP ledger which do use the concept of an account and maintain a balance for each private key on a ledger account, which has processing advantages, but there is still no concept of a uniquely identifiable XRP). 

This balance is just a number, which is given a unit name such as bitcoin, depending on the blockchain. For example, there are 18,038,238 bitcoins as of 9 Nov 2019, which means the sum of the balance on all the private keys used on the bitcoin blockchain sums to 18,038,238. It is incorrect to believe there are 18,038,238 uniquely identifiable bitcoins.

Many journalists fail to understand this concept, especially when talking about tokenisation. Digital assets such as bitcoin and ethereum are often described as tokens, but the token is the name of the units of the balances associated with each private key, there are no uniquely identifiable BTC or ETH tokens. 

I am curious how banks can use TIPS for global cross-border payments unless they break their SCT adherence agreements with the EPC.

TIPS uses the SCT Inst scheme, and SCT/SCT Inst rules only allow payments which originate from a payment account in the EU.

There was a request last year to the EPC to allow payments originating outside the EU to be forwarded as SCTs within the EU, but this was rejected in their change request consultation.

Typically, a payment sent to a EU beneficiary from outside the EU is sent to a correspondent bank in the EU which then routes it to its final destination through Target2 or perhaps through a bilateral with the beneficiary bank if ones exists. The Target2 RTGS is expensive compared to TIPS and other clearers of SCT Inst (e.g. EBA's RT1) and is not 24/7 or guaranteed real-time.

However, the big issue is that banks typically do not screen intra-EU ("domestic") SCT payments - if the beneficiary bank is unaware a SCT Inst/SCT originated outside the EU, the payment will not be screened as it should be as an international payment creating a financial crime risk.

It requires a rule in the SCT Inst/SCT scheme to identify a SCT as originating outside the EU and mandating the originator data that needs to be included at the right detail in the SCT for beneficiary banks to screen. Beneficiary banks would also need to modify their processing to screen SCT Inst/SCTs that originate outside the EU.

One for the EPC to reconsider?

"Sleepwalking towards a cashless society"? - I remember coining that phrase two years ago in a Finextra blog https://www.finextra.com/blogposting/13654/sleepwalking-towards-a-cashless-society?ref=fintastico.com

However, portraying the UK cash system as on the verge of collapse is a little over-dramatic. Although declining, the level of cash withdrawals is similar now to that in 2003/4 when usage was rising (peaking in 2012), but there are still 33% more ATMs now than in 2003. In the same way the number of ATMs lagged the demand for cash on the way up (they peaked in 2015), the decline of ATMs will lag demand on the way down. See the stats on the Link website.

The availbility and acceptance of physical cash is important, and does need to be managed, but the real issue is the fundamental need to replace cash with a digital equivalent that exhibits similar characteristics to the physical form, as outlined in my blog, such as no requirement to register to use it (or for anything, including a bank account).

This requires true innovation, and, two years on, there is scant evidence any is underway, or even comprehension by the industry, including Fintechs, that it is needed.

This looks like a missed opportunity to create a competitive environment.

When Faster Payments in the UK opened access to its central infrastructure it purposefully created an open environment for service providers to provide access, and decided against selecting its own access provider - it wanted the market to decide.

This was a wise and successful decision - the result is eight firms are accredited to provide access to Faster Payments, and direct participation in the scheme has increased 4 fold in three years.

In contrast, the Eurosytem's approach to limit the choice for the ESMIG to just three access providers risks limiting innovation and competition in European payments.

Has the EP considered extending this rule to Euro payments originating outside the EU?

Strictly, the SCT rulebook does not allow payments originating from outside the EU to be processed as SCTs within the EU.

An EU PSP receiving an incoming payment from outside the EU can ony forward it to its final destination in an EU account through Target2, Euro1 or a bilateral arrangement, all far more expensive than a SCT.

This restriction makes remittances into the EU expensive, creating friction in cross-border payments, in particualr for consumers and SMEs - a barrier to new business models (eg internet of things), new payment flows and trade.  

Payments originating from outside the EU all have to screened under the funds transfer regulations, but once done, they should be allowed to be processed as SCTs (as they are in other domestic clearing systems such as FPS in the UK and IMPS in India).

This highlights the deficiencies of the store and forward messaging system used by Swift where payments are initiated without certainty they will reach their destination, pass screening checks along the way or with knowledge of fees - it is surprising that it has taken so long for a utility like this to be developed and it is an indication that banks are taking more seriously the money laundering risks in cross border payments. Still, IIN is an information system rather than a payment system and it is curious it is on a blockchain, it is unclear what this adds over a simple database .

“3.1 biilion transaction reports” on money laundering! When will the FCA do something about it instead of watching it happen in front of them? The U.K. National Crime Agency figures for money laundering in the UK are £36bn - £90bn pa, and believes these numbers are an underestimate (despite all those transaction reports) Assessment 2017 indicates that previous figures of £36 billion to £90 billion for all money laundering impacting on the UK could be a significant underestimation. Money laundering is also an enabler of serious and

ATMs are a 20th century innovation that developed in a competitive environment without regulatory intervention. Now their use is coming to an end we have a regulator with a remit to promote competition and innovation focusing on the past rather than the future. PSR - preservation of superseded rails?

Time is running out for retailers to provide their own payments service , both in store and in app, and regain control of the customer experience at checkout. They risk becoming dependent on device manufactuers and the “Pays” in a similar way they are on card companies.

A new management team, a new operator (NPSO), a new owner (Mastercard) of the central infrastructure outsourcing service, a new regulator (PSR), a new payments architecture (NPA) under consideration, transactions volumes ticking up towards 2bn....there are a lot of moving parts in FPS at the moment. I hope otherwise, but is this a symptom of too much change too quickly?