The UK government has been conducting secretive trails with tech startup GovCoin on developing a blockchain solution for welfare payments since early 2016.
The trail, which was initiated in conjunction with partners Barclays, RWE npower and University College London, saw claimants use a mobile app to receive and spend their benefits payments. The transactions, with the consent of all parties, were recorded on a distributed ledger in order to help facilitate financial management.
In July 2016, GovCoin CEO Robert Kay said:
“GovCoin Systems brought together a team with deep expertise in core financial services infrastructure and global transaction services to build a platform with the potential to improve people’s lives. This proof-of-concept is the first concrete stage in that journey.
“We believe in a flexible, open and collaborative approach and are already working effectively with Barclays and RWE npower to develop creative answers to the complex problems faced.”
The app employs a virtual version of the “jam-jar method” of dividing money into separate pots for different expenses. Users can create virtual jars and then apportion money into them. So, for example, a user could have separate jars for rent, gas and electric and transport costs.
A major benefit of the system would be circumventing the banking system. Currently it can take up to three days for benefit payments to go through banking system, a delay which can have dire consequences for people struggling financially.
According to GovCoin, the UK welfare system loses around a staggering $1 trillion every year due to friction and fraud costs in the distribution of aid and social welfare. The startup’s solution leverages blockchain, machine learning and the near universal ownership of mobile devices.
Jeremy Wilson, vice chairman of Corporate Banking at Barclays, said:
“This initiative focuses on adding an additional layer of richer data and identity onto payments, so that a deeper and more effective relationship can be established between the government and claimants. We are keen to see how the positive potential of this service develops and adds to our wider efforts to explore the uses of distributed ledger technology.”
A primary feature of the GovCoin system is that claimants are paid in cryptocurrency rather than Sterling. This is an important way of gathering more data about both how the funds are spent but also about the individual doing the spending. The hope is that this data will allow for the creation of better targeted goods and services.
Critics have claimed that the use of data in this way essentially amounts to exposing already financially vulnerable people to commercial opportunists.
It is currently unclear how the small-scale trials went and whether the UK government is planning further implementation.