Singapore Group Creates Blockchain for Inter-Bank Payments

Blockchain, FinTech, Group | October 5, 2017 By:

A Singapore consortium has developed new blockchain software prototypes which decentralize payment netting while preserving transactional privacy.

In November, 2016, the Monetary Authority of Singapore (MAS) announced that it is partnering with R3 and a group of financial institutions on a proof-of-concept project, called Project Ubin, to conduct inter-bank payments using blockchain technology.

The consortium includes the Association of Banks in Singapore (ABS), Bank of America Merrill Lynch, Credit Suisse, DBS Bank, The Hongkong And Shanghai Banking Corporation Limited, J.P. Morgan, Mitsubishi UFJ Financial Group, OCBC Bank, R3, Singapore Exchange, UOB Bank, and BCS Information Systems as a technology provider to the project.

In March of this year, the consortium announced the successful conclusion of Phase 1 of the project. Deloitte was commissioned to produce a report that covers the aspects of distributed ledger technology (DLT) that are most suited to settlement systems and details the design principles used for the prototype.

In a report titled “Project Ubin: SGD on Distributed Ledger,” Deloitte said the working inter-bank transfer prototype on a private ethereum network was built. Successful end-to-end integration between the private ethereum network and the MEPS+ test environment was achieved.

Participants pledge cash into a custody account held at the central bank. Then MAS creates an equal value in digital SGD on the distributed ledger and sends each bank an amount of digital SGD equal to the amount they pledged. Once banks receive their digital SGD transfers from the central bank, they are free to make transfers to each other or back to the central bank.

The exchange of digital SGD on the DL occurs without credit risk for participants, as transfers of digital SGD are transfers of a binding claim on the central bank’s currency and the central bank is not subject to default. But the current iteration of the Project Ubin utilizes cash custody accounts, whose ownership remains with the holder, and hence are not truly bankruptcy remote (if the counterparty goes bankrupt, then the account will go into the bankruptcy proceedings. A true collateral account might have to be developed within the MEPS+ CAS system.

Under the Phase 2 of Project Ubin, the consortium successfully developed software prototypes of three different models for decentralized inter-bank payment and settlements with liquidity savings mechanism.

Existing netting programs rely on a single payment queue visible to the operator to find offsetting payments. Decentralizing the queue has the potential to expose payment details to an unauthorized party. The consortium said the software models developed in Project Ubin achieve a superior combination of decentralization and privacy. They are among the first in the world to implement decentralized netting of payments in a way that preserves transactional privacy.

Five technology companies contributed to the project. Accenture managed and developed the prototypes; R3, IBM, and ConsenSys were engaged to provide support on the respective DLT platforms of Corda, Hyperledger Fabric, and Quorum. Microsoft supported the deployment of the prototypes on Azure Blockchain.

MAS chief FinTech officer Sopnendu Mohanty said the key outcome of the consortium’s effort is the ability to perform netting while protecting the privacy of transactions. This helps to open up opportunity for a wider adoption of DLT-based settlement systems.

“We are sharing our learnings and knowledge from Project Ubin to encourage greater experimentation among central banks and financial institutions, said Mohanty. “We look forward to working with other central banks on the use of DLT for cross-border applications.”

Accenture will publish a report on the project findings and details of the prototypes developed during the Singapore FinTech Festival, to be held from November 13 to 17.