International payment company ACI develops blockchain real-time payment network, paving the way for central banks to use blockchain

What would it be like if all central banks were running on blockchain? ACI is working to find the answer to this question.

The international payments company, which provides a suite of software-as-a-service tools to more than 5,000 credit unions, payment processors and banks that handle $14 trillion in transactions a day, is exploring how blockchain can play a role in its products.

Using a network of five nodes running on servers in Omaha, Nebraska, and Norcross, Georgia, ACI has created a blockchain proof-of-concept designed to simulate how a central bank and four financial institutions could transact on a blockchain.

Last month, ACI announced plans to work with partner VocaLink to create a payments infrastructure for clearing houses and central banks.

Roger Oliphant, chief architect at ACI, explained that it took them about a month to integrate an undisclosed blockchain into their real-time electronic payments network Universal Payments (UP). However, while there is still a long way to go, he believes that customers are interested in learning more about blockchain applications.

Oliphant told CoinDesk:

“We think of ACI’s job as providing our customers with that technology mechanism to do what makes the most sense for them.”

UP was launched in 2013 and provides retail payments, transaction banking services and payment risk management to more than 80 countries. Oliphant said that under the current development framework, ACI plans to provide usable blockchain services.

Ultimately, he expects the integration to include multiple blockchains, with implementation aided by industry alliances.

He said:

“Our strategy is that we will have multiple implementations that allow us to interact with some kind of Ripple network, as well as co-develop with Ethereum. Most of our customers are interested in that.”

Integration Plan

However, Oliphant believes that ACI's customers may require the technology to process at least 2,000 transactions per second, a number that we are still a long way from reaching.

In this proof-of-concept, ACI cleared and settled trades in five to seven seconds, significantly faster than the one to three days required by current systems.

However, this is still not fast enough for payments, he said, as consensus calculations are still too slow for the millisecond range that current systems can achieve.

Despite the current limitations of the technology, Oliphant said the technology demonstrates some of the benefits that blockchain could offer central banks and the wider financial system.

Oliphant believes that if such a test were to be used in the real world, central banks would be able to look at 'all settlement states and all institutions' and monitor transactions simultaneously.

Oliphant said the central bank would be able to see all transactions from every institution.

Also said:

“Central banks, such as the Bank of England or the Federal Reserve, will be able to see some ACI member transactions completed in real time.”

Potential customers

The ACI statement illustrates how it could play an important role if industry interest in blockchain increases.

In the past, ACI has helped to establish UK Faster Payment, Singapore FAST and the upcoming Australian New Payments Platform (expected to be operational in the second half of 2017).

Earlier this year, the ACI even commissioned financial research firm Celent to write a report on the potential impact of blockchain technology on central banks. The report suggests that cryptocurrencies issued by central banks could appear as early as 2018.

Central banks drive development

The timing of the ACI prototype comes at a time when global central banks are showing increasing interest in blockchain, which means ACI has found the right direction for market development.

Earlier this month, Federal Reserve Chair Janet Yellen said the U.S. central bank is ‘watching’ blockchain technology ‘closely’ given its potential for payments, clearing and settlement.

However, there is no broad agreement among central banks on what this interest means, and different central banks currently have different projects on the technology.

The Dutch Central Bank said it plans to see if it could use blockchain smart contracts to program entire financial markets, while the Bank of England warned that no ‘drastic changes’ would happen any time soon.
However, Oliphant expects the industry to change soon.

He noted that blockchain technology is being developed today, which promises to be able to process 1 million transactions per second, and cited projects currently under development such as the Ethereum Raiden Network.

Oliphant concluded:

“We’ve been waiting for this kind of speed to come.”