Western Alliance Bank transferred $1.1 million digital dollars to Coastal Community Bank in an inaugural demonstration last week of a new payment rail built on blockchain technology.

More than 100 U.S. banks watched the real-time transfer between $50 billion Western Alliance Bank and $1.5 billion Coastal Community Bank Dec. 16.. The Digital Interbank Network — owned and governed by member banks and slated to go live in 2022 — is built on blockchain by New York-based Tassat Group, the network’s sponsor, which said it was the first transfer of digital dollars between banks.

Why it matters

Member banks can use the network to make real-time payments in digital dollars, which are backed by actual dollars on deposit at the bank, a key difference between operations at the network and cryptocurrencies such as Bitcoin, Kevin Greene, Tassat’s chairman, told Bank Automation News.

“What we do is secure, instantaneous, 24 hours a day, 365 days a year,” Greene said. “Then when a transaction is done, as a sender, you get in 10 to 15 seconds confirmation that the person or entity are sending into it receive the cash.

“That’s very different from what happens today. If you and I are at the same bank, I don’t really know that you got the money, and I can only do it from nine in the morning to about four in the afternoon.”

‘Nirvana for payment’

The network could be used in any vertical to move money, Tassat CEO Ron Totaro told BAN.

“It’s the magic of blockchain, this instantaneous movement of funds, which is exciting,” Totaro said, adding it’s “Nirvana for payment” that could be a $25 trillion market for a variety of use cases, including payments in real estate, health care, cargo and logistics, payroll, insurance and remittances.

The network “leapfrogs the current rails,” and even real-time payment offerings such as FedNow, Totaro said. Other real-time payment solutions have transaction limits that the blockchain network does not have, he noted.

Tassat also offers a product called TassatPay, which provides an individual blockchain for banks as well as digital wallet and tokenization capabilities. The payments platform provider began marketing that offering in the first quarter of 2021.

“I’ve had a chance to speak with about 100 banks and CEOs and leadership teams over that point as we’re educating them on blockchain, hearing their pain points, and explaining how we can help come up with creative solutions for them,” Totaro said.

Tassat is giving the network protocols and related intellectual property to Digital Interbank Network member banks to run, he added.

Closing the (blockchain) loop

Key to the interbank network is that it’s built on a closed-loop blockchain rather than a public blockchain, Totaro said. Public blockchains are accessible for anyone to look at a node to see transaction flows; the network’s closed-loop blockchains allow visibility into the transactions only by the banks and Tassat, which control access and can allow regulators access for security and compliance purposes.

Building on blockchain allows the creation of smart contracts, which are programmable parameters for moving money, Totaro said.

“Blockchain enables you to create smart contracts or attach data sets, and basically, is what I like to call ‘programmable money’ — you actually can begin to code how a payment can be made under what circumstances,” Totaro said. “That’s the power of blockchain that we’re just scratching the surface on.”

But first, he added, banks need the infrastructure, which is where the Digital Interbank Network comes into play.

“If you talk to a banker, they want to get to programmable money, but they first need the infrastructure to tokenize their fiat currency,” Totaro said. “Then from there, they can move that money instantaneously. But you will see different use cases have different smart contracts and programmable capabilities attached to it.”

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