Money is a very interesting and curious concept. It has many definitions both technically and culturally. And for the most part the general public still see it as a physical manifestation in the form of notes and coins.
The old days of physical registers are now gone as money is transferred on ‘Rails’ – a term coined from railway lines. These rails are digital and can offer high speed transfer of value, but are still in effect limited by regulations and mostly – trust.
In my youth I remember having a savings account with my local bank. When I needed cash I would present my account book to them and they would compare this with their local register and give me the cash while making a written entry of the withdrawal, and updating the balance.
If I needed cash from another branch they would call through to my home branch and check with the register of my account there to see it matched my account book, and then add an entry in for the withdrawal. If the phones weren’t working – no withdrawal.
Those were the days where everything was done on paper, and in a sense all funds were actually held in local branches, and funds transferred between branches. For a long time the same was true of cheques – they needed to go back to your home bank for authorisation.
This actually got scaled up to a national level with registers held at the head of each bank as to how much funds they received and sent to other banks. And the state bank had the top authoritative balance sheet.
Banks internally started a slow digital migration in the early 70’s – but only so far as their internal registers went. Account balances and the like were stored in digital form and updated once a day – usually in the wee hours of the morning. During this decade cash dispensing machines also made their appearance and quickly caught on. But even they did not always have a live connection with the central bank. They were usually only available from the outside of bank branches which actually held a local static balance register from main office.
So transactions during the day were only transmitted back to the bank’s central hub in the night. This was a feature I made use of on occasion as a poor university student. I knew the machines went offline at 9pm but allowed users to withdraw a small amount without checking their balance. Unfortunately for me, this practice did not come without penalties.
Banks also need to transfer funds between them and balance the books. And even late in the digital migration most were doing this in a very manual fashion – due to trust and oversight. My sister worked for “The Queen’s Bankers” and explained how every night they would reconcile transfers to other banks. Three levels of human sign off were needed before the figures could be typed into separate terminals for each competitor bank. Maintaining what we call an “Air Gap” between IT systems. This provides for the trust in the equation
This system of processes then moved over to a live technology based solution which was mostly complete by the late 1990’s. This migration coincided with another big technology revolution at the time – the internet boom (and subsequent bust). I had the privilege of heading up the technology team that built the first online digital bank portal for Prudential – Egg.
In reality the online bank portal was a loss leader for Egg’s mortgage business. And with the state of back-end digital systems it was never going to be real time. Transactions and balances were only updated in the down time or very early mornings.
It was also a challenge to develop the integration with the bank as the only time developers were allowed to have access was in a 3 hour window starting at 2am in the morning. So our team slept during the day in our hotel and arrived at the Dudley facility at around midnight to begin our shift.
This allowed for us to move as much “Funny Money” around for a couple of hours until the systems were refreshed from magnetic tapes. This project also highlighted how current systems server software – based on Windows – was not up to handling so many requests at a time. As we finished the project we saw the arrival of high end servers to take up the real job where integration with updated banking servers would offer true real-time account management.
This migration to digital led to banks and financial institutions gradually adopting standards for the transfer and storage of money. The basic infrastructure standards and processes are usually described as the Rails. Not to be confused with Al Gore’s description of the internet as a “Series of Tubes”.
These rails are comprised of various different standards and systems and connections to services to facilitate funds transfer. They provide the pathways for funds to go between banks and also up to the authoritative state bank – in the UK’s case, The Bank of England.
They also provide pathways for cross border payments to other states via services such as SWIFT. Although most of these services and pathways are globally utilised without friction, some of them have been used to control and limit the transfer of funds. But there are new such services coming online to serve particular states and economies. All of these systems rely on trust and accountability – both sides of the books must balance.
It is interesting to note that with the removal of any physical backing for money – such as gold – and the migration to digital storage and highways, our money is essentially just data stored in digital registers.
Even with cross border payments the movement of gold from one cage to another is gone and now is a matter of moving bits of data from one system to another. In a real sense this is very similar to the new digital currencies and Crypto currencies, except the labour done to produce the funds is not “Mined” to show “Proof of Work”. But again, the systems ultimate requirement is trust. Trust in storage and trust in transmission.
ArchOver & Banking
ArchOver’s platform as a lending facilitator requires a means for funds management. Payments in and out and transfer of funds from one account to another. We also make use of Direct Debit as much as possible, and in some instances require services for cross border payments.
ArchOver’s Payment Service Provider (PSP) is licenced and regulated e-money provider. This differs from a bank in that it uses one aggregate account to manage individual “Wallets”. Ultimately all of this sits on top of a common retail bank infrastructure. Ultimately all new digital banks require a top level bank to underpin them.
Our partner processes incoming and outgoing payments twice a day, but this is moving towards real-time in the near future. Direct debits are also managed by our PSP partner and are automated once a mandate has been agreed by the end user.
ArchOver also uses a partner for handling IFISA management. This partner manages the actual interface with HMRC to manage the subscription limits and also the transfer in and out of funds in the “Tax Bubble”.
Trust in our funds management comes through the use of Anti Money Laundering (AML) and Know Your Client (KYC) policies and procedures. Funds management can sometimes pose problems but at ArchOver we are always there to make the processes as simple and transparent as possible.
Where Next?
Payment systems are all moving toward fully real time transfers of funds, between accounts and even across borders. Digital challenger banks are adding value on top of the current rails to facilitate new products and services and speed up payments.
Open Banking is allowing engagement with platforms like ArchOver from directly within your bank portal, also enabling engaging with your bank directly from within a platform like ArchOver’s to pay for a pledge.