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If the financial services industry's current fascination with distributed ledger technology (DLT) comes to naught, it will at least have nudged many institutions into accepting the benefits of collaboration to a far greater extent than in the past. Rather than multiple competing consortia, pan-industry groups have been formed, creating a viable ecosystem in which the use of the technology stands a greater chance of flourishing. But avoiding complexity will also be important.

Avoid complexity

Financial institutions have trumpeted their commitment to collaboration with their competitors for a long time, but in many cases this has largely been lip service: many of the "standard" processes and market practices, such as the FIX Protocol used in securities trading, owe their existence to the efforts of a few back-room stalwarts working in their own time.

At the end of last year, the R3 consortium announced that it had reached the membership limit of 42 banks laid down in its charter; that's 42 of the world's largest banks in a group that is now looking to extend membership to other types of institutions in the broader financial community, including non-banks. The creation of a network of this size is a prerequisite for successful adoption of DLT by incumbent market participants, but so too is making the deployment of applications as simple as possible – almost to the point of plug-and-play – if the promise of reduced friction in transactions is to be achieved.

The recent announcement that Earthport plans to develop an interface for its payment platform using the Ripple protocol, along with a similar deal between Ripple and CGI announced last October, suggests that progress is also being made on this front. Both companies describe the integration of the Ripple protocol to their systems in terms that suggest it will become just another interface, sitting alongside ports for SWIFT messages or whatever other connections are needed for whatever purpose – Earthport sees the primary use of the Ripple interface as a liquidity management tool, which should give those who think of it as just a connection some pause for thought.

The payment hub architecture, allowing connectivity to any and all potential payment types, overcame initial skepticism over the past decade as financial institutions realized that it would solve their Single Euro Payment Area compliance requirements. It may be too soon to say that a blockchain-based interface, such as that which Ripple is developing with its partners, will take its place as just another connectivity option in a payment hub, but it is certainly a desirable outcome.


Further reading

"2016: Time to focus on what distributed ledgers can do for you," IT0059-000049 (January 2016)


David Bannister, Principal Consultant, Financial Services Technology

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