How Bullish Is JP Morgan’s Blockchain Exploration as a Means of Cross-Border Payments Going to Be?

For JP Morgan – It Continues to Explore Blockchain as a Means of Cross-Border Payments – Signing 220 Banks up for it Worldwide

JP Morgan Chase, while having an international renown as a powerful financial force, both in the United States and abroad. Over the course of April 21st, it was revealed the JP Morgan, with its banking chest of over $2.62 trillion in various assets, seeks to widen out its uses of its existing blockchain systems.

Along with its already operational Quorum blockchain, JP Morgan is adding a series of new features to its Interbank Information Network (IIN), and is currently being picked up and applied by over 220 banks in operation across the world.

Along with the virtual currency – JPM Coin, which was launched in the first quarter of 2019, the climate seems to be shifting more towards a positive approach when it comes to blockchain technology, bringing cryptocurrencies closer to mainstream application.

JP Morgan and Cryptocurrency – The Blockchain Before Bitcoin Approach

Compared to other companies out there in the world of institutional finance, investment and banking, JP Morgan has been maintaining a generally mixed approach towards the application of virtual currencies.

One of the most outspoken individuals is its CEO – Jamie Dimon, who is known mostly for his pretty heavy handed comments about Bitcoin over the years.

One of the most prominent comments made by the JP Morgan CEO was back in 2017, when he referred to Bitcoin as a massive ‘Fraud.' A year onward, the banking behemoth would go on to reiterate his position on Bitcoin, all before going on to state that he doesn't ‘really give a shit' about it as a cryptocurrency.

How far this stance has changed over the years, however, as he would go on to take a far more easy approach when it comes to Bitcoin, especially when the CEO took to the skies to attend the World Economic Forum in Davos in 2019. The CEO went on to ask whether he had taken any degree of satisfaction with the collapse of cryptocurrencies, especially Bitcoin last year, but he would go on to reply that he didn't.

While there has been a great deal of overt criticism hoisted on the world's single largest cryptocurrency, Dimon has been taking a far greater level of care when discussing the underlying technology underneath Bitcoin. Over the course of 2015, he went on to share his opinions on the subject of blockchain technology, arguing that “blockchain is like any other technology,” while on its own, this comes off as though blockchain is like garden variety technology. But Dimon also clarified further:

“If it is cheaper, effective, works, and secure, then we are going to use it. The technology will be used, and it could be used to transport currency, but it will be dollars, not bitcoins.”

During this latest gathering of financial experts at the World Economic Forum, Dimon provided a far more updated, and increasingly optimistic approach on blockchain technology. To be more specific on his comments, the CEO of JP Morgan highlighted that he is, in fact, very much pro-blockchain technology, in spite of the significant amount of hype that currently envelops the technology, with this kind of innovation serving as an ideal substitute for certain commonly used online databases:

“Blockchain is a real technology — it’s just a database we can all access that’s kept up-to-date.”

This is far more than rhetoric when it comes to Dimon's greater interest in the technology. JP Morgan's experimenting with blockchain technology actually spans a far longer lineage than just 2018 to now. It goes back to 2016, when the multinational giant published its white paper for its take on a secure private version of Ethereum – Quorum, which is still in effect today.

Quorum itself was developed as part of the Ethereum Enterprise Alliance (EEA), with JP Morgan operating as one of the founding companies within it. As was previously mentioned, the Quorum blockchain itself operates on top of the Ethereum blockchain, and is based around after the dedicated Ethereum Go client.

Since then, it has also been implemented by major pharamceutical companies such as Pfizer as well as Genentech along with the technology company – Microsoft Azure along with a range of others.

Along with being applied by a number of major companies, it has since been tested by a number of major companies with an international reputation. These include the likes of Goldman Sachs Asset Management as well as the National Bank of Canada.

So while this is something that was inextricably linked with JP Morgan, but in March 2019, he company went on to announce that it has taken into consideration that Quorum operate as an independent entity in a broader attempt to attract more potential corporate partners that may have otherwise been rather reluctant to have a direct deal with JP Morgan.

This is especially the case when it comes to major companies that also function as competitors to the bank but are otherwise interested in using Quorum.

The IIN – Creating an Increasingly Growing, Blockchain Powered International Ecosystem of Banking

Powered by its initial private blockchain solution, JP Morgan's IIN operates as a peer to peer network which makes use of Quorum. This system was initially launched as a pilot project in 2017, its underlying objective being to create a system of seamless and secure information sharing for any number of banks that joins the ecosystem.

In summary, according to the company's website, this system would allow for a large number of solutions – “from minimizing friction in the cross-border payments process to enabling payments to reach beneficiaries faster and with fewer steps,” Suresh Shetty, who operates as the blockchain technology lead for the IIN, explained the following:

“Historically, correspondent banks communicate one-way, bank-to-bank, but we have transformed their interaction. When a payment detail is flagged for confirmation, different parties can interact simultaneously, requesting and sharing information.”

This has become an increasingly enlarged coalition of companies looking to make use of this inter-bank ecosystem, with more than 220 banks across the world signing up as members of this system according to March 2019. These have included the likes of major banking names like Sumitomo Mitsui Banking Corporation (SMBC) based in Japan, Crédit Agricole – the France-based co-operative bank known as one of the largest in the world as recorded by turnover – as well as the Spanish Banco Santander.

What this demonstrates is that this network is expanding out at a very quick pace, with more than 60 banks joining in on the ecosystem within the last few months alone. This is all the more exceptional when we consider that the IIN is composed of approximately 157 member banks as of January 2019.

While it is enjoying a significant amount of progress over this year, much like Quorum, there are a number of financial institutions that may be hesitant in joining a venture that is spearheaded by JP Morgan, who may be perceived as a rival. This is according a blockchain expert and the co-founder of Hosho – Hartej Sawhney. The company itself is highly active in protecting investments and providing smart contract services to companies, he stated the following.

“IIN is not a competitor to Ripple unless it begins to sweep all the banks in the world onto their network, which could be difficult for JPM given their historical reputation. Ripple, Circle, and Transferwises advantage may be that they are third-party intermediaries, not banks themselves.”

One of the things that must be considered is that the top priority of the INN is not in order to facilitate cross-border payments with its own dedicated cryptocurrency as well as stablecoins (This is something that Ripple is attempting to accomplish with its own solution – RippleNet), but rather than just tackle the current downsides of the existing system with a blockchain solution.

“Broadly speaking, the cross-border payments system works quite well. Attempts to construct some new way of transacting on blockchain look to us like a solution in search of a problem,”

Speaking as the Head of Europe, Middle East and Africa payments and foreign exchange on behalf of JP Morgan Chase, Sungmahn Seo, he spoke to Euromoney last year, where he underlying the primary goals of INN:

“However, when a cross-border payment does get stuck for whatever reason, that can get quite painful. It can be difficult and can take weeks to resolve. We want to make resolving stuck payments much simpler and much easier, and that is about easing access for the right parties to the right information.”

The US Banking behemoth itself receives a vast number of enquiries with regards to stuck payments on an annual basis – anything ranging from 100,000 to 200,000, according to Seo, with most of them being international. During a conversation, he underlined the kinds of hurdles this involves for banks in a greater level of information.

“There can be many steps between multiple correspondent banks in sending a payment from the US to China, for example. And when a query pops up, the question becomes: which bank has the full and complete information? Banks start sending emails but some banks don’t like to respond that way because email may be insecure.”

CEO goes on in further detail about the kind of challenges:

“So, then it’s phone calls between banks in very different time zones. The query can start ping-ponging around. When it gets painful, it gets really painful. A payment that should have taken minutes can take many days to complete as requests for information ping-pong between the banks.”

Consequently, rather than simply handling a vast number of cross-border payments such as Ripple with its SWIFT-Killing XRP and cross-border payments solutions, along with a range of others that seek to overtake the conventional system of money transactions and remittances by placing it into a blockchain system. On its own, the IIN merely operates as an encrypted digital distributed ledger network which allows its hundreds of participants to identify themselves and allow for a seamless rate of information sharing which would be necessary for the movement of money internationally.

Most notably, neither the likes of Ripple nor the IIN have really taken the time to disclose in a public way, just how their systems function, which is a relative red flag. This is something that the blockchain researcher, Eyal Shani of Aykesubir, pointed out during a conversation.

Now, what we're seeing is that there are some brand new major features that are being added and implemented into this ever rapidly growing network. John Hunter, who serves as the head of global clearing for JP Morgan highlighted that IIN members will soon be able to rapidly identify and instantly verify whether or not a payment is heading over to a valid bank account, thereby preventing any wrong transactions – this new update, which is scheduled to go live by late 2019.

At this moment in time, however, transactions can be subject to rejection after a few days if they were unfortunately sent to the wrong address or bounced due to incorrect information, such as typos in the . name, sort code, a wrong account number and addresses. Hunter went on to explain this further during an interview:

“Banks straight through processing rates are in the mid-80s to mid-90s. It’s that gap — the 5 to 20 percent of payments — that have to be assessed by operations where we’re trying to alleviate some of that pain.”

Shani went on to state that the use of smart contract solutions and blockchain technology will allow for the IIN to drastically minimize the number of errors that take place in cross-border payments.

“By tokenizing the system and enabling the use of modern smart contract and flexible coding, the IIN could solve better and faster compliance problems and other payment errors. The negative feedback regarding the centralization of the coin is irrelevant at this point of maturity of blockchain.”

JP Morgan Chase does also seem to acknowledge the fact that, in the current state that it's in, blockchain is still quite some time away from realizing the potential of it as a solution. Joyce Chang, JP Morgan's bank chair of global research explained early in January of this year:

“Blockchain isn’t going to reinvent the global payment system, but it will provide marginal improvements. The most meaningful impact will probably be three to five years away and mostly on trade finance.”

In addition to this, a report conducted by the Financial Times also showed that JP Morgan is planning to draw in a wider range of fintech companies, specifically startups within the underlying structure of the IIN network.

These companies will develop applications in a purpose built sandbox where they can gain access to services such as data modelling, file transfers as well as secure messaging within this ecosystem. Hunter went on to explain to the company – “Developers only need to bring their intellect” to this kind of sandbox. In addition to this, a paid subscription system is reportedly going to be implemented into the ecosystem for IIN members in the near future. This also gives the implication that JP Morgan is relying upon this blockchain network in the long run.

While the banking behemoth has its own Crypto project being received with more than a mixed bag of responses. Thanks in large part to Jamie Dimon's own initially negative reception of Bitcoin coming to roost with feedback on the JPM Coin.

One of the fundamental arguments related to the JPM coin is the fact that it's not a cryptocurrency at all. Regardless, JP Morgan presses onward to explore the wider, ever-expanding field of blockchain technology. And considering the fact that there are a large number of banks that are already getting involved with this project, the US financial giant appears to be heading in the right kind of direction with blockchain technology.

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