JPMorgan creates a brand new unit for blockchain initiatives because the expertise is on the verge of getting cash
A man is reflected in a sign outside the JPMorgan Chase headquarters in New York City.
After years of hype for which there is little to show, blockchain technology is on the verge of a breakthrough: making money with actual business applications.
At JPMorgan Chase, the company's JPM Coin digital currency will be used commercially for the first time this week by a large technology client to send payments around the world, said Takis Georgakopoulos, the bank's global director for wholesale payments.
That development, along with several other behind-the-scenes steps, convinced JPMorgan to start a new company to house the blockchain and digital currency efforts called Onyx, Georgakopoulos said in a phone interview last week. The unit has more than 100 dedicated employees, he said.
"We are introducing Onyx because we believe we are entering a phase of commercialization of these technologies, moving from research and development to something that can become real business," said Georgakopoulos.
Blockchain was originally hyped as a technology that would turn entire industries from finance to manufacturing to agriculture upside down. It has attracted billions of dollars in investment, but still little in terms of tangible results. Venture capital funding for blockchain startups fell 35% last year to $ 2.79 billion, according to CB Insights.
JPMorgan's move could give a boost to the broader blockchain and cryptocurrency industry, whose proponents believe mainstream adoption is drawing closer. Digital currencies emerged last week after PayPal announced that users would soon be able to buy, hold and sell crypto directly from their accounts.
Takis Georgakopoulos, global wholesale payments manager.
Source: JP Morgan
At JPMorgan, the bank is focused on alleviating vulnerabilities in the world of wholesale payments, particularly areas where the industry could save hundreds of millions of dollars with a better solution, Georgakopoulos said.
For example, for cross-border payments that rely on a complex global network of correspondent banks, payments are sometimes declined because of errors in account information or other problems. JPMorgan is one of the biggest players in the industry, moving more than $ 6 trillion a day in more than 100 countries.
If banks could confirm that payments had the correct account information and regulatory format before they were sent, they could prevent costly rejections.
A network with more than 400 participating banks and companies is essential for these efforts. The group, which has been renamed the Interbank Information Network since a 2017 JPMorgan pilot, will be renamed Liink and launched with two functions that validate payments before they are sent.
Banks could charge pennies to validate data for each transaction, save money on bug fixes, and create a model to make money by participating in the network Umar Farooq, the newly appointed CEO of Onyx.
Another area is paper check processing, which involves armies of people handling mail in physical locations called lockers. This could be radically simplified by an exchange where the digital information associated with a check is published and the email is skipped altogether.
"We're talking about hundreds of millions of checks being sent," said Georgakopoulos. "By using a blockchain version where attendees are the primary issuers of checks and the primary operators of lockers, we can today save 75% on the total cost of the industry and have checks available in minutes."
This project is months after its commercial launch, Farooq said.
Umar Farooq, CEO of Onyx.
Source: JP Morgan.
The company is also looking into creating new, separate payment rails for central banks that have expressed an interest in creating their own currencies. "You look at China, you look at Singapore, you look at digital currency use cases," Georgakopoulos said. "If we are able to develop a working model, we think the likelihood of adoption becomes very high."
The bank's JPM coin now lives with a large international tech company that uses it for 24/7 cross-border payments, said Georgakopoulos, who refused to name the client. Other customers will be brought on board, he said.
The developments give JPMorgan executives confidence that blockchain has gone through a period of high expectations and will soon produce real solutions. This follows the path of the so-called Gartner hype cycle, which is a model for the introduction of new technologies.
"When you think of blockchain, we are either somewhere in the low point of disillusionment or just above that on the hype curve," Farooq said, referring to stages in the Gartner cycle. "So at JPMorgan we talked about it relatively quietly until we were ready to scale and commercialize it."