More than 75 banks are to team up with financial giant JP Morgan in regulated banking’s biggest application of blockchain technology.
Societe General and Santander are among a group banks signing up to join the Interbank Information Network (IIN), a system created by JP Morgan in order to speed up cross-border payments that has been on trial for 11 months now.
IIN offers an immutable blockchain ledger that parties can refer to when errors occur in transactions. This means that any of the links in the chain of a financial transaction can instantly consult the database for information they require, or request clarification of erroneous data directly. This streamlines the somewhat cumbersome ’daisy-chain’ process that occurs currently, where messages have to be sent back along the chain between participants sequentially, expending extra time and effort.
IIN is not a cryptocurrency payments technology, in the style of Ripple’s xRapid system that uses XRP to provide low-cost liquidity in inter-currency exchanges. It is very similar, however, to Ripple’s xCurrent system, which offers a similar Interledger Protocol-based system that can be consulted as a “single source of truth” in a similar way to IIN – alongside secure messaging options, cryptographic validation of transactions and integrated FX pricing to streamline the process of cross-border transactions in a similar manner.
xCurrent has been in operation at a number of banks for a while now, Santander is known to be one of its users, and will become part of Ripple’s wider RippleNet suite of services over time. The wider offering will also include liquidity provision via xRapid, due to come online soon, and a more customer-facing payments option, xVia. JP Morgan, however, seems to have almost immediately leapfrogged xCurrent’s adoption numbers in one fell swoop – whether banks will look to utilise and integrate both platforms, or chose between them, will be a story that plays out over time.
The FT cites JP Morgan as saying that their system is a response to bank’s losing out in the cross-border payments to some of the companies that Ripple is supporting with xRapid, and other new names like TransferWise. Its banks analyst, Jason Goldberg, says “Payment is one the segments banks worry about in terms of ceding to non-bank competition.”
Adding to this sentiment, its global head of global payments and receivables, Emma Loftus, added that “non-banks have been pointing out the frictional processes in the existing cross-border payment mechanism,” and that “things like blockchain are addressing some of these age-old problems.”
Commenting on the move by JP Morgan, Richard Chambers – COO of blockchain investment platform InvestX and former director at Royal Bank of Scotland’s Corporate Transactions Team – said he believed that “JP Morgan’s Interbank Information Network is one example where the banks are using blockchain technology to even the playing field versus fintech startups such as TransferWise, which has a lower cost base.”
JP Morgan expects the IIN system to deal with around 14,500 payments per day in US dollars almost immediately, and expects the network to grow rapidly as it adds more banks and more currencies to the offering. With its service seeing bigger up-take, but offering less functionality than RippleNet will do shortly, it remains to be seen whether it will seek to expand the service to offer the kind of facility that the crypto-based company plans in the near future.
“Despite popular opinion, large banks have been looking at blockchain for years for various use-cases across payments, settlements and issuance” Richard Chamber of InvestX observes. “It promises to both reduce cost and increase speed of reconciliation. It’s also starting to be used in private equity and venture capital, where it can bring liquidity to normally illiquid markets.
“The more the traditional banks begin to understand the benefits blockchain technology can bring, the better, but their bureaucratic structures and cartel like behaviour mean that adoption will be at a snail’s pace whilst innovative market entrants win market share and, importantly, customer’s trust.”