Public Commercial Blockchain Payments: It’s Almost Here

Business automation is at the top of the agenda for many CDOs. But very few are turning to public blockchains to automate payment transactions – until now.

A recent proof of concept (PoC) from Fujifilm Business Innovation Hong Kong (Fujifilm BI HK) and HSBC indicates that this possibility is not so far in the future.

Under this POC, tokenized documents, such as invoices and smart contracts branded by Fujifilm BI, can be automatically exercised with payment transactions processed by HSBC. These documents are tokenized as semi-fungible tokens (SFTs) through public blockchain technologies supported by the Blockchain-based Service Network Spartan (BSN Spartan) and integrated with the HSBC DLT Settlement Utility (HDSU).

Niche and first of its kind

Described by Fujifilm BI HK as the first of its kind, this PoC aims to demonstrate secure, fast and fully compliant payment transactions on a public blockchain platform as one of the commercial applications of the future.

“We are the first group of IT companies to take advantage of such deployment and commercialized applications,” said Alan Chan, senior director at Fujifilm BI HK. “Our PoC is only a small part of the whole DLT payment process, which only facilitates local payments.”

Blockchain expert and Gartner vice president analyst Christophe Uzureau noted that PoC is a niche application of blockchain technology. “I don’t think there are similar types of services available in the market,” he said.

Most DLT-based payment networks focus on bank settlements rather than commercial transactions, with the more prominent ones involving Ripple’s XRP and IBM’s World Wire. They both facilitate cross-border payments with private or approved blockchain technologies.

Red Date Technology, the developer of BSN Spartan and a Hong Kong-based blockchain company, runs on the public blockchain technology for payments. It recently created a digital payment system called the Universal Digital Payment Network (UDPN) to connect stablecoins and central bank digital currencies (CBDCs) across different systems in the same way that the SWIFT network does for financial institutions.

DLT-based commercial transactions

For DLT-based commercial transactions, Uzureau said most of them are within the supply chain, which facilitates the certification of documents and assets as well as their traceability and makes trade finance more efficient. While some have collapsed, others are gaining traction, such as Marco Polo Network and Komgo.

Unlike Fujifilm BI HK’s PoC, these platforms are built on private permissioned blockchain technologies Corda and Quorum respectively. This means that the network is not open to public participants; only specific users have access. Despite being closed networks, they operate on a larger scale involving buyers, sellers and their associated banks and financiers.

Not only does this PoC use public blockchain-inspired technologies, but Uzureau said it is also unique for its specific applications in document tokenization and automated payment execution.

Chan noted that one of the benefits of using tokenized documents to trigger payment automatically is to reduce the manual approval process and speed up financial operations. Distributed Ledger Technology (DLT) makes transactions more secure with consensus mechanisms and immutable records, allowing businesses to track their transactions in real time for increased accountability. Fujifilm noted that the application could also be extended to various documents and payments in the future, such as leasing, insurance, shipping and trade finance.

From payment flow to data flow

“The benefit of this PoC is limited to the reconciliation process,” Uzureau said. “But it seems to be going in the right direction for more complex applications.”

He said there is still much work to be done to harness the full potential of a public blockchain for commercial payments and transactions. One element missing in the PoC is the certification of the documents.

“This is not just about improving payment flow, but also data flow,” he said. To ensure end-to-end accountability and integrity of the data, the documents should be certified before being tokenized. This will allow extended use of the tokenized documents, such as cross-border payments. Uzureau said the certified and tokenized document process on a public blockchain can also bring accountability and integrity to the transaction, reducing disputes.

Chan added that the PoC lays a foundation for companies to use other DLT services such as decentralized identifiers (DID) to identify the parties and documents. This can then reduce the time and costs associated with identity verification and administration.

Taking public blockchain to its full potential

Transparency is another potential benefit of using public blockchain that this PoC has yet to exploit, according to Uzureau. In theory, public blockchain allows all parties to participate freely, encouraging more complex applications, enabling interoperability and preventing vendor lock-in.

More business participants in the PoC can better demonstrate their potential. He said that with more participants, the platform could potentially support more complex and dynamic transactions, such as multi-geographies, currencies and regulations, with changing requirements.

“Another important advantage [of public blockchain] is the access to a community of developers,” he said. The PoC can encourage more developers to participate in testing the platform and build more features, allowing it to adapt the payment process with more banks and industries.

The improved interoperability between multiple parties and other public blockchains can also offer credential portability. Uzureau added that these certified and tokenized transaction records could make data portable. Companies can reuse this information for loan applications, facilitate bidding or carry out M&A due diligence.

“This improved data flow could revolutionize the relationship between businesses, especially SMEs, with banks, ultimately boosting innovation,” Uzureau concluded.

Sheila Lam is the contributing editor of CDOTrends. She has covered IT for 20 years as a journalist and has witnessed the rise, hype and maturity of different technologies, but is always excited about what happens next. You can reach her at [email protected].

Image credit: iStockphoto/AntonioSolano