November 12 2018 | AtoZMarkets
Banks may have found a way to employ blockchain technology to solve cross border payments problems. It has been reported that an American investment bank, JP Morgan Chase has been having positive results to this effect.
Over the years, banks have had cross border payments problems largely unsolved. Banks’ experimentation surrounding distributed ledger technology has been over-hyped over the years. A distributed ledger is a database that is consensually shared and synchronized across networks, spread across multiple sites, institutions and locations. This technology makes cyberattack more difficult by making transactions have multiple ‘witnesses’. JP Morgan chase, an American investment bank, has been able to utilize blockchain to effectively develop distributed ledger technology which has helped to solve the problems of cross border payments.
What problems does JP Morgan’s IIN solve?
The project, termed Interbank Information Network (IIN) is silently producing result at scale. It was reported that IIN is a more efficient way for banks to transfer US dollars across borders and institutions. This network is able to make problematic payments that are being held up for days due to compliance issues, go through almost instantly. The success of this project would boost the morale of an industry that has spent almost $1.7 billion on blockchain projects which have yet to meet banks’ high expectations. According to David Treat, head of Accenture Capital Markets blockchain practice.
”Certainly from a size of ecosystem perspective and starting to do something in production, having (so many) banks (participate) and some of the world’s biggest banks is a big deal”
Mr Treat continued that until the end of 2017,
”everything was experimental and prototypes, production was something small and safe in the corner… what we have seen this year is a move to real production. And now the first of to those ecosystems is taking on real life use cased”
Mr Treat added that while IIN is currently the only blockchain project of scale, it won’t remain in that status for long as more and more projects are coming out that are building confidence among industry leaders. He believes this innovation is at a point where ‘real value is going to happen’.
There are still arguments as to what ‘real value’ is. The early blockchain enthusiasts believed the technology would help reduce banks’ cost. However, banks do not expect IIN to generate significant savings now or later in the future. Instead of being preoccupied with the idea of savings and costs, JP Morgan expects IIN to help banks fend off competitions from Fintech start-ups which have exploited the inefficiencies from cross border transfers to offer cheaper and faster money transfer solutions.
It remains to be seen whether IIN would make a real impact in the marketplace. According to JP Morgan, IIN is estimated to handle more than 300,000 transactions a day which is relatively smaller than the 13.5 million daily cross border transactions offered via swift system. The IIN network now has more than 100 members. It’s growing faster as more banks join the network. The daily transactions within the network is expected to grow exponentially.
How does IIN affect Fintechs?
The IIN has little involvement of Fintech in its development. Whether the network would be a threat to fintech in the nearest future would be an interesting thing to know but Mr Umar Farooq, head of blockchain at JP Morgan says that while fintechs were not currently involved directly in the IIN project, ”we actively participate with Fintechs across all parts of the bank”
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