Private settlement networks promise speed and efficiency, but can payments leaders safely embrace innovation without sacrificing transparency and regulatory oversight?
by James Hurren
A quiet revolution is unfolding in global payments, a shift from traditional settlement infrastructures to private, blockchain-powered systems. These so‑called ‘shadow chains’ are private, permissioned settlement networks settling value outside legacy rails. Consortia of corporates and financial institutions are racing to enable real‑time, programmable, and capital‑efficient settlement. But as innovation accelerates, so do concerns: opacity, compliance gaps, and fragmented liquidity. For the payments sector, the question is urgent: can the industry harness the advantages of private settlement networks while ensuring transparency, interoperability, and regulatory integrity?
The volume and value of cross-border payments have surged significantly in recent years. Over the past decade, cross-border payment volumes rose by 61%, while values increased by 37%, according to the Bank for International Settlements. The total cross-border payments market is projected to rise from $194.6 trillion in 2024 to $320 trillion by 2032, with B2B the largest segment, according to FXC Intelligence. Despite this, the correspondent banking network, through which most cross-border payments flow, is becoming increasingly concentrated.
At the same time, cross-border payments rely heavily on manual due diligence, often involving lengthy questionnaires and document collection as well as ongoing re-verification. These inefficiencies are felt by businesses: payments remain slow, expensive, and opaque. The European Central Bank (ECB) reports that one-third of retail cross-border payments took more than one business day to settle in 2024, and costs remain stubbornly high at 3% or more in many corridors. Distributed ledger technology (DLT) is stepping into the breach. Private, permissioned ledger systems promise atomic, 24/7 settlement, programmability, and reduced intermediaries. Fnality CEO Michelle Neal says: “DLT offers a world where settlement can be done in real time, 24/7, atomically, and with fewer intermediaries, driving lower costs and risk.” She adds that permissioned platforms “can be supervised by central banks,” with operators accountable to regulators. Crucially, she underscores that while these platforms offer privacy and efficiency, accountability and governance must be crystal clear.
Private settlement networks offer speed, programmability, and reduced intermediaries, making them ideal for tokenised assets, real-time liquidity management, and settlement finality. However, these advantages come with trade‑offs. Data visibility often resides only among participants, obscuring broader oversight and friction points for compliance teams.
Inevitably, regulators are wary when infrastructure becomes opaque, siloed, and disconnected from official oversight, factors that can make private chains appear as unregulated “shadow chains.” Yet not all private settlement networks are the same. Neal asserts that permissioned platforms can strengthen regulatory compliance: “Only assured institutions can access such platforms…AML can be applied in the same way…operators can demonstrate to their regulators that they are able to comply.” She highlights that clear governance, rulebooks, and supervisory oversight (e.g., central bank supervision) are instrumental in avoiding opacity and preserving systemic trust. Industry pilots indicate regulators can be open to innovation in this space
There is no one private settlement network; each version offers distinct infrastructure, liquidity mechanics, and integration points. For example:
These technologies can complement rather than fragment the current system, allowing users to tokenise receivables and access on‑chain liquidity within traditional rails. This technology operates as “a programmable financial infrastructure stack…an interoperability layer between compliance, capital, and real‑world payments,” explains Ali Erhat Nalbant, co‑founder & CEO at Arf.
As private networks multiply, interoperability becomes essential. Siloed systems trap value and fragment liquidity, a risk Neal flags as a core challenge.
Nalbant supports the need for interoperability: “Innovation must not only focus on fragmentation,” he says. “Forward‑looking providers are building layers of interoperability, not isolation… private settlement networks should act as a connective layer, integrating liquidity, compliance, and capital markets into existing ecosystems rather than displacing them.”
Interoperability standards, bridges across token forms, and shared rulebooks will be prerequisites for scaling.
Private settlement networks may promise speed and capital efficiency, but they also introduce new operational and compliance complexities. One of the most immediate risks is reduced observability. In traditional correspondent systems, regulators and compliance teams often have multiple layers of transactional and counterparty visibility. On private rails—especially permissioned ones—data is often visible only to direct participants, creating the potential for “blind spots” in monitoring.
Unsurprisingly, this environment challenges existing fraud controls: “Traditional fraud detection that relies on transaction-level signals is already challenged…in these emerging private rails, where data visibility and baselines are often limited”, says Morris. He goes on to argue for a multi-layered, journey-centric approach, integrating device intelligence, behavioural signals, and upstream session data. This rail-agnostic model would track manipulation across the entire payment journey, not just at the point of settlement.
Traditional fraud detection that relies on transaction-level signals is already challenged in these emerging private rails, where data visibility and baselines are often limited.
Some providers are taking a proactive stance by building compliance directly into their architecture. Nalbant emphasises the need for liquidity and settlement platforms to be fully traceable, regulated, and auditable. Only licensed institutions are onboarded, with strict KYC/KYB, sanctions screening, wallet whitelisting, and financial audits. All transactions are recorded on-chain in USDC or fiat equivalents, creating an immutable audit trail that can be monitored through third-party dashboards. Such systems aren’t shadow chains but serve as “a blueprint for how real-world assets and financial flows should work on-chain: traceable, legal, and creditworthy,” says Nalbant.
The way these platforms are built and governed will determine whether private settlement networks fragment into isolated patches or become an integrated layer of the global payments fabric. Without interoperability, digital assets risk becoming trapped on siloed platforms. Conversely, well-governed permissioned chains, integrated with other networks, can improve transparency, trust, and utility.
For payments leaders, the takeaway is clear. Fraud detection must adapt to rail-agnostic, behaviour-driven models; compliance must be embedded in the core design; and interoperability must be prioritised from day one. Failure to do so risks recreating the inefficiencies of legacy systems in a new digital form, only faster, and potentially more opaque. Success, on the other hand, would mean a settlement landscape where speed, trust, and regulatory alignment coexist, enabling the industry to reap the benefits of innovation without sacrificing oversight.
Private settlement networks are reshaping payments with real-time settlement, modular liquidity, and capital efficiency, but success depends on transparency, regulatory adherence, and systemic integration.
Fraud detection must evolve to be rail-agnostic and behaviour-centric. Platforms must bake in compliance and visibility. All of this requires interoperable models spanning public and private settlement networks, fostering liquidity connectivity rather than fragmentation.
Engagement with governance structures, standards, and regulatory frameworks by payments leaders will facilitate this. New chains won’t define the next era of settlement; it will be defined by how seamlessly they connect and how transparently they operate.
Innovation must not only focus on fragmentation. Forward-looking providers are building layers of interoperability, not isolation
