A UK fintech company is gearing up to launch a national sandbox with banks, broker software providers and conveyancing firms to test a mortgage stablecoin designed to improve the mortgage completion process and combat fraud.
Coadjute, which likens itself to the property equivalent of Swift - a banking payments network - intends to make it easier for the £240bn of mortgage funds moved nationally each year to land in the right bank accounts on time.
The sandbox, set to launch in November, will run for “a couple of months” to trial and gather feedback on the stablecoin, before entering a formal design period and finally going live “sometime in 2022”, according to Coadjute’s chief executive, Dan Salmons.
“There is no market infrastructure for property,” Salmons told FTAdviser. “As far as we know, this will be the first [mortgage stablecoin] in the world.”
Unlike a mainstream stablecoin like Tether, which is pegged to the US dollar and helps investors minimise their exposure to cryptocurrency volatility, this stablecoin would have a much more specific purpose.
“When you get a mortgage, you get a decision in principle to take to an estate agent,” Salmons explained. “It’s a promise from the bank to issue the money. What we’ve done is convert that piece of paper into a stablecoin on the ledger.”
This would see banks lock the real money at the source in an account, using the stablecoin - or the bank’s promise to release the money - as a token backed by money in the fixed account to pass along the ledger.
“It’s the stablecoin that’s moved during completion,” said Salmons. “Then the real money can be issued at the end.”
This would help combat fraud, which is increasing in this space, he explained. “Because the money is programmed for a specific purpose, it can only be used for what it is programmed for.” In other words, the money - in stablecoin form - becomes worthless to fraudsters.
UK Finance’s half year fraud update found £42.2m was lost in the first half of 2021 to invoice and mandate scams - which include criminals posing as conveyancing solicitors - increasing 16 per cent on the latter half of last year.
“Transactions always get compressed into a rushed Friday afternoon, because it can’t happen over the weekend,” said Salmons. “It’s all done via push payments too over public email, which introduces a terrible risk of fraud - with everyone re-checking amounts and phoning around.
“I’ve heard some real horror stories of money being sent to a spurious account. Fraudsters know where to jump in.”
Whilst Coadjute won’t release names of banks, software providers and conveyancing firms partaking in the sandbox until it launches in November, Salmons did say the sandbox has received “significant” interest from “large and small lenders”.
The technology uses the R3 Corda blockchain as its foundation, which is also being used by Sweden to test its central bank digital currency.
In the future, Salmons envisions this technology benefiting conveyancers in for professional indemnity insurance.
“They would have lower premiums if we can lower the risk, so we’re going to look at this next year and come up with specific products.”
ruby.hinchliffe@ft.com
