Fnality, a global organisation developing and scaling innovative payment systems across various jurisdictions, has unveiled a new ‘earmarking’ functionality which enables banks to hold digital cash for release upon receipt of proof of an event.
Fnality revealed that Banco Santander, Lloyds Banking Group, and UBS all played a significant role in developing the new earmarking function. When ‘earmarked funds’ are set aside in Sterling Fnality Payment System (£FnPS), the world’s first regulated DLT-based wholesale payment system, they cannot be used for anything other than for a specific purpose.
Through the launch, Fnality aims to ensure it always maintains transaction and business model integrity. With earmarking, financial institutions can systematically program when funds move, for example, in exchange for a specified (digital) asset, or a related market event.
“Fnality’s Earmarking feature is a landmark achievement, bringing smart contracts and programmability to payments in a digital representation of central bank money for the first time,” explained Michelle Neal, CEO at Fnality International. “This not only addresses existing challenges in wholesale financial markets but also paves the way for a range of innovative solutions that will shape the future of digital finance.”
With this feature, Fnality says it becomes a key enabler of tokenised asset markets, which require a real-time programmable cash leg to unlock their promise of faster, cheaper, and safer settlement, as well as new revenue opportunities.
John Whelan, managing director of digital assets at Banco Santander, also added: “One of the promises of institutional blockchain-based applications is ‘atomicity’ in that all the legs of a transaction either fulfil together or they all fail. There is no leg risk. The concept of ‘earmarking’ as introduced by Fnality helps enable this feature in a way that can be truly interoperable with other DLT systems.”
Bringing programmability to payments
This new functionality sits alongside other Fnality capabilities, including 24/7 availability and real-time settlement, underpinned by a digital representation of funds held at the central bank, to enable transformative collateral mobility and intraday treasury optimisation benefits. These market tests illustrate Fnality’s drive towards becoming a key institutional payment rail for market-level digital business models.
Christian Kramer, head of payments strategy and business development at Lloyds Banking Group, said: “In 2023, we were the first UK bank to achieve a blockchain-based payment using a digital representation of central bank money via Fnality.
“Now, our partnership has reached another milestone by enabling programmability through the earmarking of digital funds held at central bank. Using programmability and smart contracts in payments will enhance financial security, accountability, efficiency and customer confidence while reducing failed payments. Adding these features means taking another step on our path to innovate together by leveraging distributed ledger technology, which brings a new way to unlock value for customers in the UK and beyond, across multiple use cases.”
Anthony Clark-Jones, who leads the strategic ventures portfolio at UBS Investment Bank, said: “Systematic earmarking of funds is an essential feature in scalable digital business models. The connectivity and programmability enabled through a regulated, DLT-based, institutional-grade payment rail can be leveraged for sustainable commercial outcomes, namely intraday liquidity and balance sheet optimisation, alongside delivering positive risk outcomes at scale.”
