Cryptocurrencies have been much talked about in recent months, with Bitcoin spiking in price and falling off again, but financial institutions have been interested not in the digital currencies themselves but an underlying feature – the blockchain. Now a major bank has put the technology into use for international money transfers.
Santander says that the launch of its One Day FX service makes it the first bank to roll out a blockchain-based international payments service to retail customers in multiple countries simultaneously. The banking group’s executive chairman, Ana Botín, promises that the service will allow instant transfers in several markets by this summer. “One Pay FX uses blockchain-based technology to provide a fast, simple and secure way to transfer money internationally – offering value, transparency, and the trust and service customers expect from a bank like Santander,” she said.
Also known as a distributed ledger, blockchain has long been touted as a solution to fraud concerns and the difficulties of tracking global financial transactions. It was developed as a part of bitcoin to solve the problem of “double spending” that a purely digital currency poses – how do you stop someone spending the same token with two or more suppliers? In a distributed ledger a network of computers agrees on a publicly visible timestamped transaction history.
The fact that the ledger is worked on and checked by multiple computers controlled by different entities is central to its security. Changing an entry in the ledger is immediately apparent, since it will no longer match the versions on other nodes. Each entry (or “block”) in the ledger incorporates all previous transactions. This means that to change an entry, all subsequent transactions would need to be changed as well. Since the network of computers must verify and agree on changes, this is virtually impossible without controlling over half of the network, which is unlikely.
The prospects of blockchain for improving security and accountability, especially within fintech, have led to the development of several distributed ledger systems. Santander’s service uses xCurrent, a technology based on distributed ledgers owned by California-based Ripple. InnoVentures, Santander’s $200 million fintech venture capital fund, invested in Ripple in 2015.
Blockchain-based solutions have been proposed for tasks ranging from tracking payments, to maintain food safety records throughout a supply chain. It could even be used to create contracts that automatically trigger payment once certain conditions are met. Ms Botín certainly sees a range of uses in her bank’s future: “Blockchain technology offers tremendous opportunities to improve the services we offer our customers, and the launch of Santander One Pay FX is the first of many potential applications,” she says.