UK financial giants are embracing blockchain technology for payments in a groundbreaking move. Lloyds Banking Group, Banco Santander, and UBS have joined forces with blockchain payments startup Fnality to launch the Sterling Fnality Payment System. This system allows for live payments within the Bank of England’s real-time gross settlement service, marking a significant milestone in the adoption of blockchain technology in traditional finance.
Fnality’s achievement is further bolstered by its collaboration with major financial players, including Goldman Sachs and BNP Paribas, who collectively invested $95 million in the startup last month. Fnality specializes in creating tokenized versions of major currencies, such as the US dollar, euro, British pound, Canadian dollar, and Japanese yen. These tokens are backed by cash held at central banks, ensuring their stability and reliability.
This development reflects the growing trend of blockchain technology gaining traction in the financial industry. JPMorgan, for example, has been exploring tokenization and blockchain initiatives, such as a collateral transaction between BlackRock and Barclays facilitated through a decentralized application. The bank has also introduced a programmable payment offering for blockchain-based accounts on its JPM Coin System.
While the industry is currently in an “experimental stage” for tokenization, experts predict a shift towards production in 2024. The focus will shift to overcoming challenges, particularly in cross-chain communication.
The launch of the Sterling Fnality Payment System aligns with the Bank of England’s commitment to engage with more payment systems utilizing distributed ledger technology. As operations expand, the Bank of England will evaluate the system’s compliance with regulatory expectations, ensuring a smooth transition to commercial operations.
However, concerns about financial stability have been raised regarding the introduction of a central bank digital currency (CBDC) in the UK. The House of Commons Treasury Committee has called on the Bank of England and HM Treasury to carefully consider the implications of a digital pound. Nevertheless, the New York Federal Reserve’s experiment with major banks suggests that centralized blockchain payments could address existing challenges in the settlement process.