Partior, a blockchain-based clearing and settlement network, is steadily expanding its reach among banks in a bid to become the global leader for next-generation financial infrastructure.
Backed by the Singapore government, with DBS and J.P. Morgan as founding members, Partior is at the most institutional end of the spectrum when it comes to blockchain-based financial plumbing.
Its CEO, Jason Thompson, joined in October 2021 after deciding against joining the cryptocurrency industry. He was former president director and CEO of OVO, the giant Indonesian payments fintech, with leadership roles at Grab Financial, Euronet, and Microsoft.
Building for the future
He told DigFin he sees Partior’s mission as creating from scratch the infrastructure for Web3.0 – the buzzword for a financial industry built on blockchain.
But while he’s bullish on his own company, he’s not convinced that either private crypto nor even the big banks are going to emerge as the winners of Web3.
“Bankers tell me they think the winners are those who are winning, meaning themselves,” he said. But he looks at the example of the automobile industry and wonders. “What about Tesla versus GM and Ford? Regardless of its valuation, Tesla can innovate at scale for cars, batteries and design.”
He’s not bashing banks – they are his shareholders and users – but warning against complacency. “Those who embrace industry-level change are more likely to be winners,” he said.
It’s a subtle plug for his work at Partior, but he’s more explicit about the risks from the private crypto world.
DigFin spoke with him shortly before chaos engulfed the crypto space last week, with Bitcoin prices dropping, algorithmic stablecoin Terra evaporating and reserves-backed stablecoin Tether suffering temporary breaks, and the valuation of Coinbase tanking.
Thompson had said stablecoins as they exist today lack the regulatory or auditing chops to justify confidence. But he was also skeptical of them because they operate on public blockchains, which creates limitations. They can act as the leg to settle cash but don’t enable the settlement of value – they are not a tool to clear and settle a tokenized stock or tokenized mortgage.
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Partior has that potential – although yet to be built – because of its more club-like nature of shared infrastructure. “Our network provides transfer of value atomically,” Thompson said. “Which means we could clear and settle a currency and a liability at the same time.”
He views this institutionalized capability as an important bulwark against the narrative behind Bitcoin and other private forms of money. “If we lose control of the currency, we are in chaos,” he said. “This is the problem of our time.”
Although he is skeptical about private crypto, Thompson credits it with forcing banks and regulators to regenerate their infrastructure. “Customers see clear alternatives to buying and moving things of value,” he said. “Whether they consider crypto as money isn’t a question of being right or wrong: the customer is looking for alternatives.”
This is pressuring central banks and governments to consider digital currencies, which in turn represents a challenge to traditional commercial banks. Thompson says this is forcing a healthy culture of change management – but a culture that he says the world of regulated liabilities must win. He frames “why” as because existing private, permissionless blockchains can’t scale properly, and their proof-of-work consensus mechanisms are too wasteful of energy.
Partior emerged last year as the commercial successor to Project Ubin. Ubin involved a series of experiments overseen by the Monetary Authority of Singapore to prove whether blockchain could support a superior set of rails for cross-border payments and securities transactions.
It was established by Temasek, the investment holding company of the Singapore government, along with DBS and J.P. Morgan. DBS, which also has a licensed virtual asset exchange, has provided technology, while J.P. Morgan, with the experience of its proprietary JPM Coin, has added thought leadership.
“After Project Ubin, the government asked, ‘What do these mean?’” he said. Partior was established to explore the deep problems of banking. “This isn’t about facets of the bank, but how to solve for its legacy systems, compliance, and data needs,” Thompson said.
He argues the best way to scale next-gen architecture is by a nitty-gritty understanding of banking and banking networks – not by trying to disrupt it by creating networks that would eliminate banks.
On the other hand, Thompson says this kind of scaling is impossible within a bank. For one thing, it is hard for a single bank to convince others to play in its own sandbox. But more fundamentally, banks’ legacy setups are almost impossible to reinvent from within.
Partior represents therefore a public-private partnership approach to the future of banking and money. It is neither a US-style laissez-faire approach nor a Chinese approach that bans private alternatives altogether (at least domestically).
This isn’t a guarantee of Partior’s ultimate success but it is staking out turf that suggests its competitors will likely involve future versions of a public-private partnership.
Partior is now live with the two banks transacting across one currency corridor, Singapore dollar and U.S. dollar.
Thompson says this month the company will announce at least one more bank joining, with several more members incipient. Partior will also begin to add more currencies, including other G10 units, while the Chinese renminbi and the Indonesian rupiah are on the drawing board.
Partior offers two things: atomic clearing and settlement, and what Thompson calls a discoverable network of banks.
Atomic settlement means all legs of a trade, including currency and securities (such as a stock, a credit, or a unit in a fund) exchange hands simultaneously. This is in contrast to stock markets that take two or three days to deliver securities versus payment, or correspondent banking networks that can take even longer to move cross-border payments among multiple intermediaries.
Banks on the blockchain node are “aware” of one another because they share a ledger. This means instead of relying on a messaging system such as SWIFT to communicate terms of a transaction among a given bank’s own list of counterparties, Partior’s smart contracts can instantly shuttle a transaction to the best-execution provider.
Most of this remains conceptual: the platform currently just operates SGD/USD for two banks. But within weeks it is meant to be providing this for multiple banks across multiple currencies. And from there, Thompson intends to keep adding banks, and instruments beyond currencies.
The world’s ledger
“Five years ago, there were no regulations around central-bank digital currencies, licensing digital exchanges, or imposing compliance controls,” Thompson said. “The conditions for our success are now in place” for Partior to facilitate crypto, fiat, stablecoins, CBDCs, and tokenized securities.
“This allows us to roam both in M1 fiat and M0 atomic clearing and settlement,” Thompson noted, referring to money created by both central banks as well as privately by commercial banks.
“Success” is defined as becoming the ledger of the world’s banks, to not just transfer value like a currency but to also enable delivery versus payment. Partior is a long way from that. The technology including smart contracts is nascent. It has yet to operate at scale. Partior has so far been able to conduct atomic clearing and settlement, but “discoverability” among banks plugging in as nodes is still conceptual.
Then there’s the (also conceptual) value-add that Partior could generate by tracking and analyzing the data from the transactions on its chain. While it needs to assure banks of privacy regarding individual transactions, the platform could be in a position to create metadata of incredible value to both industry and regulators. What business model to attach to that has yet to be explored, at least in public.
Thompson returns to his automobile analogy.
“We’re talking about huge, industry change-management. It’s colossal. So far it’s been ten years since we’ve had electric vehicles on the market. There are still relatively few on the road. But EVs have already changed regulations, design, supply chains, distribution, and recharging stations.”