Faster Payments

Will Facebook’s Libra Be Part Of A New, Faster Payments System?

payments technology

For Libra — the digital currency backed by Facebook and a consortium of enterprises — will speed make a difference toward adoption (if it ever launches)?

A new white paper from Mathieu Baudet, George Danezis and Alberto Sonnino — a trio affiliated with Facebook’s Novi wallet — says a proposed payment protocol targeting real-time gross-settlement functionality would be multiples faster than the Visa system.

“FastPay allows a set of distributed authorities, some of which are Byzantine, to maintain a high-integrity and availability settlement system for pre-funded payments,” according to the paper. Libra, ostensibly, could be one of the digital currencies that could cross FastPay (along with bitcoin and others).

Digging into the white paper, the researchers state that FastPay exists as a means to settle transactions across real-time gross-settlement functions. The goal would be to settle crypto payments and also support fiat transactions.

The protocol involves two sets of stakeholders: authorities and account holders.

“Real-time gross settlement systems are the backbone of modern financial systems,” according to the paper. “Commercial banks use them to maintain an account with central banks and settle large value payments.” But RTGS systems are limited in their capacity, making them unsuitable for settling low-value high-volume retail payments directly, according to the study.

In reference to speed and volume, the white paper says FastPay has been able to facilitate more than 80,000 transactions per second. Those transactions, noted the paper, took place across 20 payments authorities — surpassing the requirements of current retail card payment networks, while significantly increasing their robustness.

FastPay’s speed means it is applicable to point-of-sale payments, too, according to the paper.

“FastPay can be deployed in a number of settings,” the authors wrote. “First, it may be used as a settlement layer for a native token and cryptocurrency, in a standalone fashion. Second, it may be deployed as a side chain of another cryptocurrency, or as a high-performance settlement layer on the side of an established RTGS to settle fiat retail payments.”

The authors contend that tests show FastPay can support up to 160,000 transactions per second — about seven times the peak rates seen on Visa’s payments networks — while running on commodity computers that cost less than $4,000 per month per authority that sends and receives payments.

In terms of mechanics, all participants generate a “key pair” consisting of a private signature key and the corresponding public verification key. FastPay also requires a smart contract on the main blockchain, or a software component on an RTGS system that can authorize payments based on the signatures of a threshold of authorities from a committee with fixed membership.

It may make sense for those involved with Libra and with the digital wallets to cast their respective gazes toward wider use cases that move beyond any particular digital currency or method of storing those currencies.

As noted in this space earlier in the year, Libra is expected to get pushback from G7 leaders, who are anticipated to publicly oppose the project due to a lack of regulations. There have, according to reports, been concerns that stablecoin could be used to launder money and finance terrorism.

(This article has been updated.)

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NEW PYMNTS STUDY: ACCELERATING THE REAL-TIME PAYMENTS DEMAND CURVE – NOVEMBER 2020

About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

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