Fnality Targets More Efficient Payments with “Earmarked” Money

Payment technology provider Fnality has unveiled the Sterling Fnality Payment System (£FnPS), a new process that brings programmability and conditionality to digital payments, thus helping to lower payment failures and increase efficiency.

The DLT-based wholesale payment system was developed in association with Banco Santander, Lloyds Banking Group and UBS and introduces the concept of “earmarked” funds that can only be used for a specific purpose once it has received a receipt of proof of event, which will trigger the payment. “One of the promises of institutional blockchain-based applications is ‘atomicity’ in that all the legs of a transaction either fulfil together or they all fail,” explains John Whelan, MD of digital assets at Banco Santander. ”There is no leg-risk. The concept of ‘earmarking’ as introduced by Fnality helps enable this feature in a way that can be truly interoperable with other DLT systems. Again, bringing us one step closer to the utilisation of this tech at scale in the banking industry.” 

Fnality says that earmarking and the programmability it brings, is “essential to scaling the digital business model for institutions”. It adds that as an enabler of tokenised asset markets, it opens up potentially a $2 trillion market, as well as new revenue opportunities. The concept has been demonstrated in several proof-of-concepts, Fnality observes, including for FX swaps, real-time settlement of tokenised securities, and real-time repo agreements.

“Fnality’s Earmarking feature is a landmark achievement, bringing smart contracts and programmability to payments in a digital representation of central bank money for the first time,” says Michelle Neal, CEO at Fnality Internation. “This not only addresses existing challenges in wholesale financial markets but also paves the way for a range of innovative solutions that will shape the future of digital finance.”  

Christian Kramer, head of payments strategy & business development at Lloyds Banking Group, adds, “Using programmability and smart contracts in payments will enhance financial security, accountability, efficiency and customer confidence while reducing failed payments. Adding these features means taking another step on our path to innovate together by leveraging distributed ledger technology, which brings a new way to unlock value for customers in the UK and beyond, across multiple use cases.” 

Fnality says it will soon launch a dollar-based version of the concept, using the proof of event process. This proof is agreed between the parties and could include the execution of a trade or clearing being completed; the assets being earmarked elsewhere, such as another ledger or for delivery-vs-payment basis; and the cash being used for another system (such as the dollar-based one), to enable settlement on a payment-vs-payment basis.

“One of our focus areas in DLT and Digital Assets is the development of infrastructure to handle tokenised assets, this is why we are partnering with central banks and peers on digital currencies and institutional payment solutions,” says Anthony Clark-Jones, head of the strategic ventures portfolio at UBS. “Systematic earmarking of funds is an essential feature in scalable digital business models. The connectivity and programmability enabled through a regulated, DLT-based, institutional-grade payment rail can be leveraged for sustainable commercial outcomes, namely intraday liquidity and balance sheet optimisation, alongside delivering positive risk outcomes at scale.”