Blockchain in Financial Services

Revolutionizing financial settlements in global wholesale telecom

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Today, the most significant issue for global wholesale telecom carriers is financial settlements. In order to connect the calls between different countries, at least two carriers, but more likely no less than three carriers, are involved in the international supply chain using voice over internet protocol (VOIP) technology. Many of the participating international carriers are small to medium sized businesses for whom establishing credit and trust with other carriers is the principal challenge of the business.

The existing system requires a large number of cross-border third party agreements, lawyers, bankers, lenders and credit insurance providers as well as numerous operational support personnel. This makes for an uncertain, expensive process with too much time consumed with chasing payments in the supply chain.

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Carrier supply chain

Most calls originate with a major carrier (Tier 1 carrier) such as AT&T (in the United States) since this type of company has the connections to consumers in the retail market. Similarly, a call is likely to terminate with a Tier 1 carrier in the foreign market such as Orange (in France) for the same reason. In between, there can be found several smaller carriers (of various Tier 2 and 3 sizes) that handle the call by dealing with the major carriers and each other, but not with the general public.

An idiosyncrasy of the system is that the participants don’t know each other except for the parties with whom they are directly connected. This de facto route secrecy adds to the financial uncertainty of connecting a call through the international supply chain. Notwithstanding the hidden identities, the call sender (the Tier 1 carrier) is able to verify the quality of the route and the duration of each call sent using telephonic switch technology under its control.

Another fundamental condition of the industry is that Tier 1 call originators work on 30/30 terms, meaning there is a thirty-day billing cycle and there is a thirty-day grace period, to pay the account rendered for each billing cycle. At present, the supply chain handles this financing requirement with some difficulty through external borrowing and granting credit to each other on variable terms usually less generous than those granted the Tier 1 call originator.

Supply chain payments

At TessPay, we have built a platform built to reform financial settlements in the industry, using smart contracts constructed on a blockchain with The Linux Foundation’s Hyperledger Fabric. Settlement of international voice calls by measurement of minutes transacted is now more secure and radically more efficient.

All of the Carrier participants in the supply chain will receive payment for minutes transacted, every 24 hours eliminating credit risk and financing requirements. The Carrier who deals with a Tier 1 Carrier obtains daily contract financing, enabling the daily funding of other participants in the supply chain. This is possible because many Tier 1 Carriers are large multibillion-dollar public companies, with sufficient credit ratings to attract finance from lenders for short term amounts due.

We use IBM Blockchain Platform to provide an objectively verifiable, distributed, immutable ledger. This enables systemic and contractual controls to assure the accuracy of daily cash settlements on the smart contracts executed by the participants in the cross-border supply chain. The blockchain network is “private-permissioned” meaning that only telecommunication companies, lenders and credit insurers may use the TessPay Platform after undergoing rigorous KYC and AML procedures.

Smart contracts

The smart contracts will run on blockchain node network which puts them beyond the control of the parties to the contracts, assuring the contracts will be executed as written once performance begins. The smart contracts will define: invoice date and interval; payment terms; rates; billing increments; code list; payments, etc.

The objective of a smart contract is to provide security over execution of the terms of a contract that is superior to and less costly than conventionally monitored adherence to legal agreements. From a financial perspective, the advantages of a smart contract include minimized counterparty risk, automated daily settlement and increased transparency. In effect, payment streams are securely automated to the benefit of all the transacting parties. This means Carriers using the TessPay Platform will be able to focus on connecting calls rather than chasing payments.

Our beta testing will begin with two major Tier 1 carriers this year where customers will originate calls in Pakistan, France and The United Kingdom. Live traffic will run on the Platform incorporating the IBM Blockchain solution. Testing will mimic all of the elements of the system inclusive of financial settlements. Once TessPay is satisfied with the operation of the Platform, customers in general will be invited to join and execute smart contracts in first quarter of 2019.

Hyperledger

We researched many blockchain-based solutions during early development of the platform, and in the end, our technology team found IBM to be the best partner. TessPay’s solution requires a robust, scalable, trusted private, permissioned blockchain — something only they could provide for the high volume of financial settlements TessPay will be processing on a daily basis, 365 days of the year. This solution allows us to scale financial settlements to meet market volume demands and with Hyperledger Fabric, the network is highly scalable with consensus and integrity securely maintained by nodes.

We’re excited about the future of settlements and the contribution we are making to the efficient transformation of payment systems. We are going from legacy structures heavily dependent upon the intervention of central authorities to distributed ledger-based semi-autonomous processes — all deployed on blockchain within the control of the transacting parties.

From time to time, we invite industry thought leaders, academic experts and partners, to share their opinions and insights on current trends in blockchain to the Blockchain Pulse blog. While the opinions in these blog posts are their own, and do not necessarily reflect the views of IBM, this blog strives to welcome all points of view to the conversation.

Unlock more business value in more cloud environments

CEO, Director and Founder of TessPay

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