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Project i2i: An Ethereum Payment Network Driving Financial Inclusion in the Philippines

Project i2i: An Ethereum Payment Network Driving Financial Inclusion in the Philippines

At Consensus 2018 we unveiled Kaleido, ConsenSys’ new all-in-one enterprise SaaS platform that radically simplifies the creation and operation of private blockchain networks.

Justo A. Ortiz, Chairman of UnionBank of the Philippines, introducing Project i2i at Consensus 2018 as part of Kaleido’s announcement

As part of this exciting announcement, Justo Aboitiz Ortiz, Chairman of UnionBank of the Philippines, introduced one of our first projects developed on Kaleido, Project i2i: a payment network built on Ethereum to connect rural community banks in the Philippines.

In the whirlwind of Blockchain Week, we had little time to provide more details about this project, so we are now taking the opportunity to outline the scope, the underlying solution, the benefits for financial inclusion, and the future of Project i2i.

“Unbanked” Rural Banks: Inspiring the Design of Project i2i

The Philippines is a beautiful country of over 100 million people where more than a third of the population survives on less than $2 a day. If financial inclusion is going to take place in the Philippines, one must start in rural areas where 56% of Filipinos live with limited access to the financial ecosystem.

Despite the existence of more than 400 regulated rural banks spread through out the archipelagic nation, the rural banks are neither connected to any electronic banking service nor to domestic and international money transfer networks, thus limiting access for thousands of communities to affordable, trustworthy, and efficient payment and remittance services. These rural banks providing for these rural villages and invested in the economic progress of these communities are, unfortunately — in the words of UnionBank’s Chairman, Justo A. Ortiz — “themselves unbanked”.

In late 2016, UnionBank started an internal exploration of blockchain applications, and for the first time envisioned applying the technology to drive financial inclusion in the Philippines. From this vision, Project i2i, which stands for “island-to-island”, “institution-to-institution”, and “individual-to-individual”, was born. As a platform to connect rural banks, traditionally excluded from mainstream payment networks and infrastructure, to each other and to national commercial banks, Project i2i aims to enable and facilitate financial transactions in remote areas of the country.

ConsenSys, UnionBank, and Cantilan Bank in Cantilan, Surigao del Sur, Philippines

As part of our initiative to help organizations across the globe build, test, and, deploy public and private blockchain solutions, ConsenSys trained UnionBank’s internal developer team on blockchain developments to collaborate on designing a viable product. This involved four weeks of research and business analysis initially conducted in the municipality of Cantilan, a rural village in Surigao del Sur. Hosted by Cantilan Bank, the first rural bank that showed an interest in the project and one of five currently engaged in the pilot, ConsenSys and UnionBank spent a week deep-diving in the local culture and economy, conducting user research with staff members and customers, mapping their current services and operations to identify pain-points and improvement opportunities and ultimately, start designing our solution.

Highlights from Project i2i field research in the Philippines Retrofitting “Crypto-Cash” for Emerging Markets

At this stage, Project i2i represents a simpler implementation of a complex system, which many in the industry refer to as crypto-cash: crypto-tokens backed by fiat currency. The concept of backing fiat currency with tokens has been explored and developed by multiple financial institutions and regulators around the world, such as the Utility Settlement Coin consortium led by UBS and Project Ubin of the Monetary Authority of Singapore.

In this use case, Project i2i is taking advantage of blockchain to create a decentralized, cost efficient, and near real-time payment network that will not rely on existing payment infrastructure and intermediaries, such as the Philippines’ PhilPass or SWIFT. The platform distributes across network participants (i.e. commercial and rural banks) the ability to issue tokenized cash and process transactions.

Project i2i’s solution consists of a web API and a blockchain back-end. The API allows a bank’s API and/or core banking system to connect to the blockchain back-end. The connection handles key management and allows participants to construct and send signed transactions to the smart contract running on a permissioned Quorum blockchain deployed through ConsenSys’ Kaleido platform. Signed transactions instructed through the API trigger three key functions of the smart contract:

Pledging digital tokens corresponding to the Philippine Pesos held in an off-chain bank account; Redeeming the digital tokens; Transferring the tokens among users of the platform.

In this way, digital tokens can be used to instruct and settle remittances between participating rural banks by consolidating through one platform messaging, execution, settlement, and accounting of the transaction.

As for the customer side, we uncovered in our field research that villagers enjoy the social interaction of going to the bank as part of their daily activities. Taking this into account, we designed the solution in a way that would not disrupt the current user experience of the rural bank’s customers, maintaining the client’s “high touch” experience and direct interaction with the rural bank’s staff. With this in mind, UnionBank developed a custom user interface that allows the rural banks’ staff to intuitively operate the platform.

While the current implementation of Project i2i is still mostly centralized (heavily relying on UnionBank for the issuance and redemption of tokenized cash), this design decision was made for the purpose of testing and piloting the solution as we continue to educate rural banks. Future iterations will move toward a more decentralized setup, allowing other participants to run nodes and contribute to tokenization and transaction processing, which would fully realize the benefits of using blockchain technology.

Basic overview of Project i2i MVP architecture The “Genesis Block” for Financial Inclusion in the Philippines

The MVP of Project i2i has now been released, and in the coming weeks the platform will undergo testing with five pilot rural banks and UnionBank in the Philippines.

ConsenSys designed and developed the MVP to validate the following technical assumptions and business benefits of cash tokenization in the context of rural Philippines:

It can be easily operated and implemented with limited integration, even in low-tech settings; It enables lower transaction time and lower transaction cost; It enables more efficient operations for rural banks, including reduction of reconciliations and simplification of accounting processes.

Although it is still too early to realize or quantify the economic benefits and social impact of the project, we anticipate that the solution will provide rural banks with significant operational efficiency and cost reduction in the execution of domestic remittance in near real-time — reducing the 20+ steps currently needed to fewer than five.

Having a trustworthy service when sending and receiving money is critical in any financial transaction — but the ability to obtain it through a cheaper, better, and faster service (as compared to services offered today by pawn shops or usurious moneylenders) can be life-enhancing for people living in rural communities. When looking at the larger picture, Project i2i presents significant benefits from the point of view of financial inclusion as enabling these domestic transaction flows in rural areas could uplift business activities and improve the livelihood of entire communities. This can also be considered a stepping stone for the introduction of more sophisticated financial services in rural areas, including more efficient lending, near real-time international remittances, and cash management services for businesses. And more broadly, Project i2i can be considered an important first step for the introduction of blockchain-based financial services in the Philippines.

As we continue to work with UnionBank of the Philippines to conclude the pilot and develop the platform throughout 2018, we aim to onboard more rural banks into the system, introduce new features, and improve on the existing ones.

We will share the first results of the pilot and our progress here, so stay tuned!

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