Yesterday, the Bank of England shared its plans to update Britain’s interbank payment system, which could open the possibility of blockchain payments in the near future. The Bank of England is not ready to adopt the blockchain, just yet, but instead, aiming to make updates to its current Real Time Gross Settlement (RTGS) service.
These changes will allow banks to have their own banking platform connected to one network. Once the RTGS is updated, individual banks can implement blockchain technology if they wish to do so. For instance, if a bank decides to create its own digital currency it can integrate it into its own platform.
In its blueprint for a new RTGS service for the UK, the BoE states, “the new generation of RTGS will be built with the flexibility needed to ensure it can interface with such technology as and when it is developed in the wider sterling markets.”
Seeing the rising demand for faster payments, the BoE and other banks are racing to explore new and innovative solutions. Besides remaining competitive in the banking industry, other goals behind these updates are to become more accessible and resilient to cyber attacks.
Apart from a system that will allow greater adoption of digital currencies and blockchain technology, financial institutions will also be able to compete with banks who already use high-speed payments.
Barclays, as well as other high street banks in the UK, are already providing customers with a faster payment method and seeking to make further improvements. Barclays uses a Faster Payments scheme (FPS) that allows most payments to be received the same day. While this is much faster than many banks, improvements are still needed to allow more efficient payments with reduced wait times.
High-speed payments eliminate having to wait up to five days for payments to clear and have lower fees than standard banking transactions. As more banks make these updates to their payment systems, other banks will have to follow suit or risk losing their customers.
The BoE has not selected the blockchain to underpin its new payments system because is feels it is not “mature” enough to offer “high levels of robustness required for RTGS settlement.”
Despite the BoE not yet adopting the blockchain into its payment system, it has been working on plans to create its own digital currency, as detailed in a Working Paper. Today, it’s not ready to dive into the blockchain head first, but it is likely a matter of time before it does. If and when it creates its own digital currency, it may gain confidence in the technology and integrate its distributed ledger technology down the road.
Last summer, the BoE announced it would overhaul the UK’s interbank payment system by 2020. With its news yesterday, the central bank appears to be on target. The BoE and other banks around the world are not only rethinking their payment infrastructures, they are actively seeking and developing new ways to re-engineer them.
The Bank of England says it will lay out plans for its payment system updates mid-2017.