UK start-up claims blockchain breakthrough in payment processing

A UK start-up has claimed a breakthrough in the financial services industry’s attempts to turn the technology behind bitcoin into a large-scale workable model by processing more than a billion potential payments a day.

Setl, a London-based group founded by a group of hedge fund investors and trading executives this year, is also in discussions with about 20 institutions to develop the prototype as a way to standardise processing of payments, from foreign exchange trading to consumer loans.

Its move comes as most of the world’s biggest banks are exploring, both individually and collectively, how they can harness blockchains, the algorithms that allow so-called cryptocurrencies such as bitcoin to be traded and verified electronically without a central ledger.

Using large-scale computing power and decentralised networks for payments and settlement could help banks save billions of dollars a year by improving and outsourcing slow and inefficient back-office settlement; this would cut the amount of collateral held up in global payment systems and reduce transaction costs.

The total cost to the finance industry of clearing, settling and managing the post-trade environment is estimated at between $65bn and $80bn a year, according to a report by Oliver Wyman.

Existing bitcoin blockchains also fully process and verify payments once every 10 minutes or so, making it unworkable for large-scale use in financial markets. A report by Capgemini and RBS Worldpay this year estimated that just over a billion non-cash payments take place every day.

Peter Randall, chief operating officer, said the Setl blockchain was the first to demonstrate that the technology could handle the volumes required by the financial services industry, “where speed, capacity and reliability are crucial”.

He said: “Our processing capacity now exceeds the volume of every electronic payment made globally on a live-time gross basis.”

Setl, its founders say, is built specifically for financial markets as it settles payments in central bank money and not a cryptocurrency. To test its efficacy, it has created a blockchain engine and simulated real-world payments. It is based on data from the UK payment system, including networks such as Link, CHAPS, BACS and CLS, which settles foreign exchange deals.

Despite the buzz and involvement of high-profile individuals such as Blythe Masters, the former JPMorgan banker, banks have been split over how to create a workable blockchain. Some start-ups offer ways to use the existing bitcoin network, but many financial services companies are wary of its past controversies involving theft, money laundering and drugs.

Last month Andrew Haldane, chief economist at the Bank of England, described the technology as having “real potential” but added: “Whether a variant of this technology could support central bank-issued digital currency is very much an open question.”

Mr Randall co-founded Chi-X Europe a decade ago; it has since become Europe’s largest stock exchange by trading volume. Commercial and investment banks as well as market settlements houses are interested in the technology, he said.