CBA testing crypto currency bank-to-bank payments

Commonwealth Bank will use the Ripple virtual currency system to transfer payments among its subsidiaries, and is forecasting further significant disruption of payments and banking.

Speaking yesterday at an Australian Information Industry Association event in Sydney, CBA's group executive and chief information officer, David Whiteing, said that current 40-year old payment protocols based on hub and spoke models were "highly susceptible to being broken."

Payment protocols are based around the use of a distributed public or private key. Encrypted messages to effect direct payments, as used by the likes of Ripple and Bitcoin, were more secure, said Whiteing.

"Payment protocols are ripe for disruption and we want to be part of that disruption," he said.

Whiteing believes the Bitcoin-style cryptographic protocol which has been replicated by non-asset based ledgers like Ripple is the way of the future.

"The bank has a role to play in that. We are doing a whole bunch of experiments using it. We are about to launch using Ripple as a means to transfer payments between our subsidiaries and we will then go and talk to customers about it."

Asked for further detail, a CBA spokesman said, "internally, Commonwealth Bank has been testing crypto protocols and we are about to begin a wider experiment with one of our offshore subsidiaries to explore the benefits of intrabank transfers using these protocols. The idea is to test in a controlled environment what a bank-to-bank internal transfer might look like using crypto rather than existing payment providers."

Ripple set up shop in Australia in March and its staff have been working with a number of Australia's banks to show them how the Ripple online payment ledger can be hooked into their back end systems. Commonwealth Bank is the first to declare its hand.

Ripple is a trust based settlement system hinged around an online payment ledger.
Organisations use cryptographic protocols to transfer digital currency known as Ripples (XRP) to represent fiat currencies as debt on the ledger, with cash payments - if required - concluded using domestic settlement systems.

While Whiteing is currently looking to use the system for intrabank payments, the technology could ultimately underpin a radical rethink of the way consumer bank accounts operate.

"We fundamentally think … a bank account will become a store of value rather than a store of currency value," Whiteing said.

"So, why can't a bank account be used to store loyalty points in the same way that you can use the slider on a Qantas website to say if you are paying points or dollars?"

He said that it should also be possible to store multiple currencies on digital wallets: "So, 15 currencies on your phone, instantly in real time - it's not that difficult for us to take that technology and make that a loyalty point store. It shouldn't be that difficult to add currencies to it and whatever other payment transfers people might want."