Public Blockchain Commercial Payments: It’s Nearly Here

Business automation is on 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 this possibility is not too far in the future.

Under this POC, tokenized documents, like invoices and smart contracts minted by Fujifilm BI, can be exercised automatically with payment transactions processed by HSBC. These documents are tokenized as semi-fungible tokens (SFTs) through public blockchain technologies supported by 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 in the future.

“We’re the first batch of IT companies to tap into such deployment and its 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 facilitates local payments only.”

Blockchain expert and Gartner’s vice president analyst Christophe Uzureau noted the 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 instead of 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 permissioned blockchain technologies.

Riding on the public blockchain technology for payments is Red Date Technology, the developer of BSN Spartan and a Hong Kong-based blockchain company. It recently created a digital payment system called 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 space, facilitating the certification of documents and assets as well as their traceability and making trade financing more efficient.  While some have collapsed, others are seeking traction, like Marco Polo Network and Komgo.

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

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

Chan noted 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 enhanced accountability. Fujifilm noted the application could also be extended to different documents and payments in the future, like leasing, insurance, shipping, and trade finance. 

From payment flow to data flow

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

He said there is still much to do to ride on the full potential of a public blockchain for commercial payments and transactions. One element missing in the PoC is taking advantage of blockchain technology for document certification. Although the PoC uses DocuSign or Hong Kong Government's IAM Smart to create digital signatures and certifications, they are not stored on the blockchain. 

“This is not only about improving payment flow but also data flow,” he said. To ensure end-to-end accountability and integrity of the documents, both digital certification and tokenization should be stored on the blockchain. This will allow extended applications of the tokenized documents, like cross-border payment. Uzureau said the certified and tokenized documents process on a public blockchain could also bring accountability and integrity to the transaction, reducing disputes.

Chan added the PoC lays a foundation for enterprises to use other DLT services like decentralized identifiers (DIDs) to identify the parties and documents. It can then reduce the time and cost associated with identity verification and management.

Taking public blockchain to its full potential

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

More enterprise participants in the PoC can better demonstrate its potential. He said with more participants, the platform could potentially support more complex and dynamic transactions, like multi-geographies, currencies, and regulations, with changing requirements.

“Another key benefit [of public blockchain] is the access to a community of developers,” he said. The PoC could encourage more developers to participate in testing the platform and building more features, allowing it to align the payment process with more banks and industries.

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

“This enhanced data flow could revolutionize the relationships between enterprises, particularly SMEs, with banks, and ultimately increases innovation,” Uzureau concluded.

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

Image credit: iStockphoto/AntonioSolano