Case Study
Global payment rails using Bitcoin Lightning
Challenge
Cross-border payments is big business, with a total volume exceeding $130 TRILLION in 2018. Financial institutions typically use the Swift network for securing payment messaging.
The Swift network has been a staggeringly successful project, having launched in 1973. It is, however, as might be expected from a 1973 product, relatively slow and expensive. This can lead to multi-day settlement times and high transaction fees. MDRx was asked by our client, one of the world’s leading payment companies, to assess the feasibility of a distributed ledger-based payment rail and architect a recommended proof of concept system.
Action
We spent a lot of time interviewing our client’s key stakeholders and process-mapped the “as-is” payment journey from client instruction to final settlement and record-keeping. This was an important and complex task, given their size and the multifaceted and heavily regulated and nuanced nature of a cross-border payment business. We conducted workshops with each internal function, including Trading, Treasury, Risk, Legal, Compliance and AML.
We spent a lot of time evaluating the pain points associated with the “as-is” journey and the use of the Swift network. We then analysed the characteristics of distributed ledger technologies to assess the extent to which they might be suited to solving them. We were honest with our recommendations and set out our reservations based on data and our deep expertise while suggesting mitigations and workarounds where appropriate.
We conducted a deep options analysis in terms of the many distributed ledgers including blockchains available to our client to develop. This involved a large number of variables including commercial, technological, legal and regulatory characteristics. We then produced a shortlist of the available options, including the client’s preferred option Bitcoin Lightning. Again, we were open and honest with our recommendations – no system is without its trade-offs and drawbacks.
We devised a set of product hypotheses to test in a proof of concept as well as a robust set of functional and non-functional requirements that any initial system should provide while recommending that any build adheres to an Agile methodology that might lead to such requirements and features changing over time. We also made recommendations for the ongoing governance and oversight of the project within the client’s organisation.
In addition to the proof-of-concept hypotheses, we clearly articulated and explained the other challenges to the project that were yet to be addressed. We recommended that our client tackles such issues in later phases, if and when the proof-of-concept phase was completed.
Finally, we architected a pragmatic, proportionate proof-of-concept system including technology components with commentary to explain our recommended stack. We accompanied this with guidance as to the legal and regulatory position of the project, provided by best-in-class experts drawn from across The MDR Group.
Impact
- A clear product focus: A recommended set of hypotheses and a user-centric approach that would position the client’s proof-of-concept favourably.
- Aligned stakeholders: Every internal department was engaged and bought on the journey, to facilitate willing internal sign-offs.
- Blockchain options: A comprehensive analysis of the competing options available to the client across many distributed ledger platforms and structures.
- Clear recommendations: Honest, candid feedback always, ensuring that we properly advised and guided the client in their best interests.
- Proof of concept architected: Ready to build and deliver on the early promise of the client’s ambitious project.
- De-risked innovation: A clearly articulated analysis of the project’s risks, assumptions, issues and dependencies, as well as specialist legal and regulatory advice from The MDR Group.
