In July 2020, five Spanish banks successfully completed a proof of concept (POC) for an interbank smart payments’ platform managed by Iberpay.
To complete the POC, Iberpay connected blockchain networks to its existing payments system for the automatic execution of Instant Credit Transfer payments. We interviewed Juan Luis Encinas, Managing
Director at Iberpay, to find out more about Spanish blockchain-based
digital payments.
For those unfamiliar with the topic, how would you describe the main
features of the proof-of-concept (POC) for programmable instant
payments via blockchain-based smart contracts recently completed by five
Spanish banks and Iberpay? What led to the creation of this solution?
There are three fundamental challenges that the industry necessarily has to sort out for the development of an economy based on blockchain networks: business agreements based on smart contracts, associated payments and digital identity.
The Smart Payments Initiative has confirmed the viability of solving
the execution of payments within blockchain networks through its
interconnection with the services already up and running.
This initiative, coordinated by Iberpay and successfully completed in July 2020, involved the participation of the five main Spanish banks and Banco de España as an observer.
Concretely, this project included the deployment of an interbank smart payments platform managed by Iberpay and a permissioned interbank blockchain network called Red-i. The POC entailed the automatic execution of triggered by business smart
contracts running in Red-i and their processing through connecting with
the Spanish Retail Payment System. During the tests, over 20,000 instant
credit transfers were successfully completed end-to-end in under two and a half seconds on average.
What are the main conclusions of and learnings from this POC and what are the next steps? Will it lead to a commercial offering?
As a result of the Smart Payments POC, the interbank blockchain network Red-i and its connection with the Spanish Payment System is fully deployed
today and ready for use when a business case comes up. Likewise, the
model has been technically, regulatorily and legally validated, ready to
go straight into production. This project does not yet include a
commercial proposal.
We have learned that payments originated within a distributed ledger
technology (DLT) network should no longer be an issue as payments
systems that process can act in networks as
trusted parties to efficiently process these payments and to send the
information back to the DLT network.
What would be the main benefits of this solution for customers?
The main benefits of this initiative are related to applying blockchain technology and capabilities to payments, i.e. programmability, automation, traceability, integrity and the intrinsic security of the network.
Although the Smart Payments Initiative currently only has an interbank
scope, this POC will allow the further development of payment services
focussed on business cases implemented in blockchain networks, which
banks will, at the same time, be able to offer their clients with the
maximum guarantee of regulatory compliance.
Moreover, this solution could also fit all payments related to forthcoming Internet of Things (IoT) networks.
How do you see the application of blockchain evolving in the payments domain and beyond in the years to come?
In November 2020, we naturally evolved this innovative initiative into a second stage: the Smart Money Initiative, which pursues experiments in the distribution of digital money. This new sectorial POC, also coordinated by Iberpay, aims to test the issuance, distribution, exchange and redemption of tokenised digital money in a controlled test environment that is already available – the Red-i.
The model proposed in this new POC focusses on testing the creation of tokens representing money in a digital form and their sectorial distribution by banks to their customers through the Red-i, within a controlled test environment already available.
It is intended to trial different design options for digital representation and distribution of money for its eventual future application in tokenised-money digital solutions, backed by funds in central bank accounts.
Various options for digital money distribution from banks to their
customers will also be tested, as well as different forms of exchanging
digital money between end-customers.
The main opportunities of this initiative are to:
- anticipate the expected future evolution of the market towards
digital money and prepare the financial sector for this eventuality;
- experiment with the practical aspects and possible design options
of digital money and its sectorial distribution, analysing its possible
impact on the financial sector; and
- promote innovation in payments and digitisation of the economy,
preparing new high-value digital services for companies and
end-customers based on programmable and intelligent digital money.
- more at EPC
© European Payments Council
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