As small-business and corporate customers increasingly ask for real-time payments, for certainty of settlement and efficient use of their working capital, Sam Sidhu wants to meet that need.
"We want to be at the forefront of that innovation, being a bank that's big enough to accept large corporate customers and take on the customer service, yet small enough to have the agility to do this," said Sidhu, the CEO of Customers Bancorp in West Reading, Pennsylvania.
Over the past weekend, the $20 billion-asset Customers and two other banks, the $1 billion-asset Cogent Bank in Orlando, Florida and the $66 billion-asset Western Alliance Bank in Phoenix, started using an interbank network and a distributed ledger to conduct transactions among one another.
They sent and received $500 million in transactions over the Digital Interbank Network on Saturday. There were about 400 transactions with an average value of $1.25 million.
"This is a way to be able to do not just instant transfer, but also instant settlement, meaning the money is truly in the account instantly as well as instant data transfer," Sidhu said. "That reduces a tremendous amount of complexity on the receiver's end and creates certainty and confirmation on the sender's end. So it's exponentially more beneficial. If you had no technology limitations, this is how banks would've designed ACH in the '70s, when they moved from paper checks."
These transactions would normally be done using FedWire or ACH. Instead, they were conducted using a private, permissioned ledger developed by Tassat Group. The blockchain that Tassat developed is a privately permissioned fork of the Ethereum blockchain using ERC 20 smart contracts. Each bank has its own instance of the blockchain. The Digital Interbank Network connects those blockchains to each other.
The use of private networks like this "is probably where things are going with enterprises," said Alex Tapscott, managing director of the Digital Asset Group at Ninepoint Partners and co-author of the book "Blockchain Revolution." "There's a need for lots of application-specific implementations that do those things, especially in financial services, where you may not want to rely on a shared ledger where everything is public."
Participating banks move funds from direct deposit accounts into a common bank-held omnibus account. Tassat then generates the corresponding amount of tokens and puts them in the banks' blockchain wallets. Then Tassat moves those private tokens at the banks' requests to anyone else on the platform. The receiving bank converts the tokens back to dollars and deposits them in the customer's account.
The sender of money gets immediate confirmation that it was received on the other side. And, at least in theory, these transactions take place in real time, even outside of business hours, when banks and wire services are closed.
The weekend launch was "a very, very, very big first step to show that the network is working and ready to go," Amy Crate, chief marketing officer of Tassat, said in an interview. "The next step will be for the banks that are using Tassat Pay to offer the network to their customers, as an opportunity for something that they can use to make interbank payments." She expects corporate customers to be live in early 2023.
Later, possibly early in 2023, the network will be opened up to commercial customers sending and receiving payments directly from their own accounts to and from counterparties at other participating banks.
The first clients of Customers that will use this are likely to be the digital asset companies it
Customers plans to let clients use the network for free, at least in the beginning.
For Customers' customers, using this network could provide working capital efficiency and ease the back-office accounting work of reconciliation, Sidhu said.
For instance, a commercial tenant could pay its landlord "at the time that is most convenient for you as opposed to several days or as much as a week in advance to make sure that the money is received on time," Sidhu said. The network also reduces the risk of a transaction failing due to the many data fields that have to be entered in a traditional payment request.
"If you reach out to your banker and you say, 'Can you send $1,000 to so and so?' there are follow-up questions on the address and other data points, and if some of those things get mismatched, it can either fail or it can get returned, because they don't know how to reconcile that," Sidhu said.
In the future, the bank plans to offer other use cases for the network beyond payments.
As it developed the network, Tassat Group was advised by a working group of more than 50 banks, Crate said.
"Our plan is by year-end to open this up more fully to all sorts of customers," Kevin Greene, CEO of Tassat Pay, said in an interview. "We're just applying a private permissioned blockchain to enable banks to do real-time payments around the clock securely," Greene said. "The network allows them to do it across banks. And we have a game plan for expanding the network over time."
