Banks execute transfer on blockchain-enabled network

Customers Bank, Western Alliance Bank and Cogent Bank completed the first transfer of funds Oct. 1 between the banks' commercial customers using a blockchain-enabled payment network developed by Tassat Group Inc.

The interbank payment rail, called the Digital Interbank Network, enables those banks' commercial customers to send and receive money at all hours. Tassat has convened a working group of 50 banks to meet regularly since January to advise it on the structure and operations of the network, said Kevin Greene, executive chairman and CEO of Tassat Group. Greene added that the company expects many of the banks to join the network over time.

"We've got more work to do, and we think it will grow very rapidly as we get going," Greene said in an interview.

The network essentially adds a blockchain layer on top of banks' existing core banking systems, according to Greene. It can be integrated with core banking systems provided by Fidelity National Information Services Inc. Fiserv Inc., Jack Henry & Associates Inc., he added.

Tassat is the technology developer behind Signature Bank's blockchain payment network Signet and Customers Bank's CBIT. While those white-labeled platforms serve each bank's own customers, the Digital Interbank Network can facilitate payments between member banks' customers.

The launch of the Digital Interbank Network is another example of banks exploring real-time payment applications, as the Federal Reserve plans to launch the FedNow Service in 2023 to settle payments in real time and around the clock.

FedNow will enhance instead of compete with the Digital Interbank Network, Greene said. Even though the network currently can net transactions between bank accounts in real time, banks have to ultimately rely on the Fedwire Funds Service to settle those payments in their Fed accounts. Fedwire operates 10 hours a day, five days a week, excluding designated holidays, and FedNow will operate at all hours.

Tassat applies the blockchain technology for banks entirely within the existing regulatory framework of the U.S. banking system, Greene said. It is different from the approach of the USDF Consortium, which is exploring a blockchain-enabled payment network by letting banks mint tokenized deposits and transmit the tokens on blockchain. Lawmakers are expected to address banks issuing digital assets in upcoming stablecoin legislation.

"That said, Tassat has been meeting with regulators and legislators on Capitol Hill so that policymakers are aware of Tassat's solutions and to ensure that Tassat's technology is not confused with stablecoins or other digital assets, which are largely unregulated," Greene said.