How JPMorgan’s Onyx is redefining payments in banking with blockchain

Please welcome to the show two JPMorgan blockchain leaders Christine Moy, who’s the global head of Liink, formerly known as IIN, or the Interbank Information Network, and Naveen Mallela, global head of Coin Systems. Christine and Naveen, welcome to the show.

Christine Moy: Thanks for having us.

Lau: I love that despite Covid and despite lockdown, we’ve got U.S. presence in Christine, we’ve got Asia presence in both Naveen and I, and we’re making things work. JPMorgan is making it work as well and expanding your team. I know you’ve got quite a few positions to fill right now in blockchain, but tell us about these grand ambitions at JPMorgan.

Naveen Mallela: Yeah, Christine, you want to go first?

Moy: No, go ahead.

Mallela: First and foremost, Angie, thanks for having us on the show. Delighted to be here. Both Christine and I are very excited to be talking about some of the exceptional industry-leading work that we’re doing. I am leading Coin Systems, which is everything about payments, everything about digital currencies. We are setting up a very large team out here in Asia to work on all things digital currencies — be it CBDCs, be it commercial bank-based digital currencies, be it stablecoins. Exciting times for us, and that’s the reason why we have so many positions open.

Moy: And just to elaborate, you mentioned that we’ve been in the space for five years and we’ve done a couple of things. For everybody, especially in enterprise, blockchain started out as very experimental, prototype technology — at least in enterprise, obviously it was live in the cryptocurrency space — but there was a lot of ‘what might we do with blockchain?’ And fast forward five years of our journey, we’ve actually made blockchain enterprise blockchain live. 

We talked about JPMorgan Coin, something that was just like a sparkle in our eyes just a couple of years ago, now it’s transacting billions of dollars a day. We’re transacting billions of dollars a day in JPMorgan Coin. Basically, now we’ve proven that it’s enterprise-grade software. For example, for the Liink network as you mentioned, we have over 400 banks signed up for that. So we’ve proven that not only is it a technology that can be kind of live and in production at a bank — which is kind of a difficult thing to do as we are globally regulated, we’ve got all cybersecurity rules, et cetera — but that we are collaborating with the broader ecosystem. It’s not just JPMorgan building a blockchain by themselves. We are actually collaborating with our clients, in some cases, our competitors — which is really interesting — and our partners in the ecosystem. 

That’s the reason why just in October, we announced the creation of the Onyx division, which is like a whole new division within JPMorgan. We have our own brand and logo and even our own special colors. And the reason why we had to carve out our own identity was because we’re doing things differently. We’re building shared software, the collaborative infrastructure, with this new emerging technology. And it’s not just JPMorgan building some products and services and selling it to everybody. It’s a way that we interact with the broader ecosystem to build these systems. So that’s basically the Onyx division that we announced earlier.

Lau: It’s really ambitious. You’ve got 400 banks as participants. You’re using JPM Coin to transfer payments. And now you’ve started talking about really expanding the ecosystem in the infrastructure, as you said, inviting others to build on top of it and layer on top of it, as it were. But isn’t there already a system in place? And I’m thinking about SWIFT, 11,000 banks as participants there. What is the future of blockchain when we think about how technology is going to supplant legacy systems, or will it?

Mallela: So Angie, maybe I can take that first. If you look at the basic construct of payments, I’d like to explain to people, that’s not changed for the better part of five decades in terms of while there has been a lot of innovation in payments. If you look at the core of a payment — the debit of one ledger, the credit of another ledger, and then there’s SWIFT synchronizing the ledgers — that basic concept has not changed. What we are looking to do in Onyx, the work that Christine is doing, the work that I’m doing in Coin Systems is about, can we change that construct? Can we turn it on its head? Can we start introducing shared ledgers where we actually get banks to share ledgers? We move away from these sequential updates of ledgers into a single atomic simultaneous update of state, and what that means in simple speak is that you no longer have these payment breaks. You no longer are worried about your account has been debited, but where is the money? You no longer have to worry about track and trace, you no longer have to worry about repairs. At a conceptual level, that’s what we are trying to do. That’s what’s different from what’s been in existence with SWIFT. We are fundamentally looking to introduce a new way of executing payments.

Lau: And that’s the promise. 

Moy: That’s on the Coin System side. On the Liink side, we’re actually designed to be complementary to existing systems. We’re actually just focused on exchanging information. For example, I mentioned that we have over 400 hundred banks signed up. In our journey of signing them up, they basically said the holy grail of what I actually want in global payments — or even also including domestic payments — is the ability to validate account ownership and status before making a payment. Basically, especially in this time of Covid-19, this is to prevent fraud. This is to mitigate returned and investigated payments which accrue fees and something that entities can use before they make a payment or before they onboard a new supplier or before they, if the supplier updates their information as an example, they can just use it many different ways. 

We actually took that feedback from our banks and we built it, and we are now live in the Asia region, enabling the ability to pre-validate account ownership and status before making payment. And the tangible commercial output of this is that at least for even a couple of our clients that we’re working with, they’re able to make payments into a corridor that they previously thought was too risky or operationally cumbersome, like either they were doing manual validation of ultimate beneficiaries or they were getting so many return payments or fraudulent payments that they were just like, ‘I can’t do this.’ And basically with Liink’s confirm application, now they’re able to revisit that particular corridor and say, ‘You know what, now I can do this with confidence. I can make payments into this corridor with confidence, which means I can make new business from a payments perspective.’ That’s on one side. That’s basically the user of confirm. 

On the other side, because we’re a bank and we built this for banks, we have this construct where banks are able to create a new revenue stream from their engagement with this application. If you’re the bank that’s requesting the information, you end up paying a fee. If you’re the bank that’s responding with the information like account one, two, three, is Christine Moy’s account, have confidence making payment. This bank actually gets paid the fee that is being paid by the bank that’s paying the fee. Everyone talks about, how do we create new revenue streams in the banking and payments world with more transparency that’s coming through? And this is it. This is an opportunity. It’s tangible, it’s real. It’s got a tech stack and a regulatory legal stack that is enforceable to basically bring all of these things into reality.

Lau: What does it mean for the average customer like myself? I walk into a bank, I’m making these transfers. Is there an ability for my fees to come down? Because you’ve created efficiency with blockchain?

Moy: Yeah. The tangible output of it is that your fees can be lower and then you have more options. Typically, there’s only like a pocket of service providers like, let’s say, the cross-border remittance providers that can do certain corridors. But now what we’re saying is that the local bank that you already have an account with is able to do the type of flows that, payments flows, remittance payment flows that they may not have been able to do previously.

So as a customer, the long-term outlook is that you get lower fees and more options, which just results in better service and better products.

Lau: And quite frankly, that’s critical in Asia. Right, Naveen? I mean, you’re running Coin Systems, JPM Coin is going to be based in Asia. Why Asia? Why the geographical center for JPM Coin sitting in this part of the world?

Moy: Well Naveen is our superstar, and he’s in Singapore. So that’s the reason why. 

Mallela: Apart from that.

Moy: Okay, fine. There’s a long history.

Mallela: A couple of things. If you look at the payments landscape with U.S. as the U.S., there’s domestic U.S. Europe has the SEPA region, and to a large extent the issue of cross-border payments has been solved for. With Asia and all of the various remittance corridors, all of the different countries, all the different currencies, that’s where the opportunity lies in terms of bringing efficiencies, in terms of how you’re able to move money across the corridors. 

As Christine said, to your question as well Angie, in terms of ‘what does it mean for me as a consumer?’ How do we make payments cheaper with things like digital currencies and Coin Systems. A, you’re able to move money instantaneously, which means again, what takes days is happening instantaneously. That’s number one in terms of user experience. Number two, in terms of how you’re making it cheaper. The faster money moves, the lesser is what we call liquidity required at each of the places to execute a payment. If the velocity of money increases the stock of money, I mean in economics theory, that you need to hold that decreases. Which means that you don’t have to have as much of liquidity to execute a payment, and that’s what makes the payments cheaper. So those are really the sort of things that we are looking to solve for. It’s widely acknowledged that cross-border payments is a problem which has not been solved for the better part of 30 years. And that’s basically the market. That’s basically the opportunity that we are going after.

Lau: Look, you’ve got India, you’ve got China, you’ve got Philippines. These are huge countries that remittances, cross-border transactions of 17% and higher, for a lot of these transactions. That’s a huge chunk of money and a huge loss of value. So I get the Asia part. You’re hiring a lot of people, though. If I’m taking a look at and comparing what your competitors, your peer banks are doing, they’re hiring maybe one or two. You guys have 56 job openings right now. I think we’re all really curious to know exactly what you’re building and what we can expect to see. This is when I use the word ambitious, I don’t think that is an inaccurate characterization of what you’re doing — 56. So how’s it going so far, by the way? Have you been able to find the talent?

Mallela: It’s going well, I would say, Angie. One thing that I will tell you is that ambition is not something that Christine and I are short of and not JP Morgan is short of. But more broadly, our approach has been quite contrarian to the rest of our competitors in the industry. Most of the competitors towards blockchain since the inception have taken a wait and watch approach. As Christine was saying, since 2015, 2016, we’ve always wanted to lead the space, we wanted to dominate the space, and we wanted to be the leaders in every part of the stack, if you will. What we’re looking to do right now is to double down on our efforts, is to actually continue to take the lead in terms of commercializing this. And that’s the reason why we’re going all in. In terms of what we are doing. And that’s the reason you have so many positions open and by all indications, that’s only going to, we’re going to keep opening more positions. 

Lau: Christine and Naveen, I might get you into trouble a little bit, but do you ever egg your boss on and remind him of that infamous quote he said about bitcoin? It stirred up a lot of people at the time. And then just to see in such a short amount of time the advancements in blockchain?

Moy: First of all, if I might add, Jamie has always loved the blockchain. I think at one point in time he publicly said, ‘God bless the blockchain, I definitely believe in the blockchain.’ So, he’s always been a staunch supporter of us through the entire program. In fact, that’s the reason why we were able to launch JPMorgan Coin. JPMorgan Coin is basically U.S. dollars on blockchain. And as the top U.S. dollar clearing bank in the world, we were well-positioned to kind of enable that payment and technology evolution. I think whether or not you believe in bitcoin is kind of like another story and I think everyone has their personal views. But I think that it’s difficult to deny that blockchain is real. Blockchain now has real serious enterprise-grade use cases. We’ve found a few of them. There are many other projects in the world that are also using blockchain that may not be as vocal, but basically if you’re working your heads down, you’re building things. You’re not really spending a lot of time talking. I mean, we’re talking right now because we’re lifting our heads up after, like, a couple of years of work.

I would say that that’s also kind of like in contrast to a number of the other banks you may have mentioned, where we actually have a strong culture of building. It’s not only like the competitive intelligence and the market research of what’s going on. It’s not only the joint definition of strategy with businesses on what is the impact, what are the opportunities, what’s the potential disruption from that jointly defined hypothesis and business strategy. We actually go ahead and roll our sleeves up and we build things, we build prototypes. Those prototypes get taken through the wringer at the bank. That’s not only technological rigor, but that’s legal and regulatory rigor, amongst other things, like basically getting approved by everyone who might be inclined to say no. And then it becomes a true enterprise-grade software.

If you think about why we’re kind of building up our team and resources is because it is a Herculean effort. As an example, we recently went live with our intraday repo product and the Onyx Digital Assets Network, and that took about 140 people across the bank, spanned, touched like 40 different teams across five major divisions like business, technology operations, et cetera. And that was just us alone. And Goldman’s going to join — they mentioned in our press release — they’re going to join in imminently in the next month or so as well. But if you think about that’s how much effort it takes to get an Onyx Digital Assets platform live. When you listen to the meetings and talk about what are the new shared rails for payments, that in itself is even more significant.

Lau: It’s also an interesting separation of strategy. So you’re really focusing on payments. You’re building that technology layer and cross-border. The other side of it is we’re seeing a lot of your competitors and banks in the space enter the cryptocurrency market either creating custody solutions or focusing on building exchanges. I’m curious if JPMorgan is also thinking in that arena.

Moy: With bitcoin that had gone from, I think it was like 8,000, 10,000 this time last year to about at the top, like 50 something thousand, It would be irresponsible for us to not be understanding the space, understanding what’s to be done, defining our strategy. In fact, especially given that we’ve been a leader in the blockchain space for the past few years, this is not a journey that it’s just started like now. This has been an ongoing journey.

Everything that we learn on the blockchain side has input into how we think about a cryptocurrency strategy as an example, or cryptocurrency or crypto asset strategy. For example, the private key management that we have to build for JPMorgan Coin or for our digital Onyx Digital Assets platform, it’s the same technical principles of how you might protect your private keys in a public space. The attack factor is different. The threat model is different because you’re talking about a completely public in the wild, adversarial, like pseudo-anonymous network environment versus a permission ‘walled garden’ like with traditional firewalling and IP whitelisting, et cetera. But the core technicals are about the same. That said, everyone likes to go straight to the custody part, but really the crypto asset opportunity is much broader. That’s the foundation. But I think all of the banks are looking at it right now. We’ll see in the next 12 to 24 months how it all plays out. I think everyone has a space, but they may not all be in the same spaces.

Lau: That’s really accurate to say. The volatility of bitcoin and other coins certainly, have a lot of those risk and compliance officers, slightly nervous and corporate treasury. But the institutional money is coming in, especially in Asia. When you think about Coin Systems, Naveen, a shared ledger system that leverages smart contracts, this really does sound like it can be used in DeFi or decentralized finance as we know it. Do you think about those applications? I mean, these are products that people want.

Mallela: At some point, Angie, we do want to go down the DeFi route. At this point in time, what we are very much focused on in terms of the world that we’re doing in Coin Systems and digital currencies is, we have a strong hypothesis that there are a number of problems which need solving in the banking space. We don’t think we need new forms of value or new forms of money to solve those problems. What we need is new forms of technology in terms of how we record that and how you transact on that. So that’s really the problem that we are looking to solve. As we spoke before, the problem that we are looking to solve is one of cross-border payments. And again, that’s a problem that exists today across the retail space, across the institutional space. Really, the way to solve that is creating the shared infrastructure. I think Christine touched upon that a little bit. What we are doing here in Singapore to begin with is, and we’ve announced this as well — so the likes of us, DBS Bank and Temasek, we are beginning to create these rails, what we call multi-currency M1 rails. So if you think about all of the CBDC work, which is happening, the central bank digital currency work, which is happening, that’s at the M0 level of the central bank money, we are creating the same sort of rails at the M1 level, which is commercial bank digital currencies. And this is where we are getting multiple banks to come together to start sharing ledgers, start having to crack at solving cross-border payments, creating new capabilities around programmability using smart contracts.

Lau: Just to jump in for everyone. So JPMorgan is collaborating with MAS, Monetary Authority of Singapore, Temasek, DBS Bank. This is called Project Ubin and it commercializes the cross-border payments network. So we have been monitoring that. Are there pilot trials in play right now or when can we expect that?

Mallela: Imminently, around the end of Q2 is when we are looking to go live with some of the pilot trials. A number of things need to come together to make this happen. We are undertaking the build out of this platform. We are directing flows. We are in the process of submitting regulatory proposals to MAS, to get a formal sort of approval on this, even though MAS has been on the journey with us right from inception. I mean, we are quite excited about it because this is not about a DeFi project somewhere. This is about institutional players coming in and starting to think about moving billions of dollars at scale using this new technology. And end of Q2 hopefully we’ll come back yet again and tell you all about the launch.

Moy: While Naveen is doing all the hard work to get that live, the blockchain team is certainly doing a lot of research around DeFi, non-fungible tokens. Like I said, we’ve been very closely linked to the public blockchain and cryptocurrency and crypto asset space for quite some time. It’s telling that all of our projects are on Ethereum variant as an example. That’s intentional. And I think that as a bank. Many did not agree with that approach early on, but now it’s sort of playing through as being relevant. Basically we are so in tune with the public blockchain cryptocurrency and crypto asset space that, there’s pretty much nothing that we won’t do.

In fact, like most recently, we actually launched an Ethereum blockchain in space. We actually partnered with GOMspace, which is a satellite company and Accenture, and we essentially launched a couple of GOMspace satellites into space and basically tested out how we would make blockchain based payments. So we essentially did ERC-20 token balance updates — token transfers, I guess, from normal people speak — in space across a couple of satellites and ground stations. Naveen is focused on doing the hard work of building those shared payments, rails and that infrastructure. But on the other side of the team, we’re also kind of doing like weird, wacky R&D things that help inform the overall program. And that’s the reason why we have Onyx as a division, as a whole that we have — I won’t say, both sides of the coin — the serious payments infrastructure part, but we also have our out-there ideas and our hypotheses around like space economy, et cetera, and running like public blockchains in space as an example. So we have a nice balance on the team.

Lau: I started off the segment saying, it is about the future finance and redefining what a bank, once upon a time lending liquidity, and leveraging that for people and for borrowers and lenders. You’re actually talking about the technology that transfers payments not only across borders but in outer space. I wanted to ask you guys about that. This essentially was an experiment to show how effective you could power payments between everyday objects like the Internet of Things. So if my home needed more electricity and instead of getting the meter to tell me how much I needed to pay every month, could this happen in real time? And almost immediately, I mean, we’re talking about the impact to IoT payments, which I think is fascinating. 

Moy: It’s been a few years in the making and it’s kind of interesting. We always talk about these project announcements and it’s like, boom, like they just happen. But in reality, they are the culmination of years of work. I don’t know if you remember, but like a couple of years ago, we announced that we had started experimenting with vehicles and using telematics to connect vehicles to blockchain using telematics. And that was in the context of a digital audit as it’s related to our financing business, to car dealerships as an example. But that was sort of like a foundation of us getting into the IoT space.

Shortly thereafter, we started experimenting with solar panels, actually connected a number of solar panels in New Jersey that are on top of Chase branches, generating green energy and using a blockchain ledger to basically track that green power generation. We actually did an experiment prototype where we actually converted those, sort of the timestamps of the green power generation and formed them into tradable assets. And it’s actually very cool because, you can basically have this, green power asset that’s traded and before you even buy it, you can actually go in and look at the asset and see what it’s comprised of, all the timestamps and all of the power generations at what location and what time and what was the weather. It kind of brings you to a whole level of granularity around data and authentication of these environmental attributes. 

Then from there, that and then that’s sort of when we moved into the satellite payments, and experiments, obviously it was cool to do something in space. I definitely want JPMorgan to be the first. But apparently Budweiser is the first beer company in space. So I was like Budweiser was the first big company in space, I want JPMorgan to be the first bank in space. And so we did it.

Lau: You nailed it. There you go. As we watched you as mere mortals here on Earth and watch what you’re doing in blockchain, we’re all really curious what we can expect from this team next. Once you hire your 56 blockchain employees for your team, Naveen and Christine, you’ve got to share. But what can we expect from JPMorgan from one of the world’s biggest banks?

Mallela: Maybe I’ll go first Angie. So again, our outline, our vision for Coin Systems, for what we want to do in payments is very clear. We want to essentially build the next generation of payment rails, while there is a lot of innovation happening in payments in general and most of that is the periphery of payments. The core rails have not changed. That’s what we are looking at revamping. So we want to be at the forefront of creating new digital rails. We want to be at the forefront of offering new digital accounts for our clients. And what I mean by that is you’ve touched upon it to a little extent. If you think about IoT payments, if you think about the economy of things, if you think about machine to machine payments, people use all of these advanced payment types require programmability. That is where your current infrastructure falls short because you simply don’t have the ability to express all of those complex rules. That’s what we are looking to transform, with the new rails and the new accounts that we are looking to create in the future. That’s the vision for my part and Christine can add on the more broader vision.

Moy: From my perspective, like what you can expect is that we’re going to make it real. Like I said, we don’t talk about things unless we are ready to do them and we’re ready to make it into reality. Basically, hopefully we’ll be checking in and we’ll be talking about the same things except we’ll say, ‘Yes, and we made it real.’ And then now we’ve kind of researching all other funky things that are across the horizon. I don’t know what’s next after space. But, there are many exciting things that we’re seeing coming out of the. 

Mallela: Mars. Let’s go to Mars.

Lau: Yeah, you got to do that Elon Musk thing with Mars. Who knows? Anything is possible. And certainly, that is the final frontier. The technology frontier of blockchain is expansive still. It was great to talk to. Both of you, can invite you back on the show and fill us in as to all the stuff you’ve accomplished in a short 12 months from now. How’s that?

Moy: Yeah, that’d be great.

Mallela: My pleasure.

Moy: Naveen, get it. Got to get it done.

Lau: Naveen Mallela, we’ve got for Christine Moy here. Both of you, thank you so much for joining us on the latest episode of Word on the Block. And everyone, it was great to have you joining us on our show as well. I’m Angie Lau, Forkast.News, editor-in-chief until the next time.

Thanks, guys.

Mallela: Thanks Angie.

(Excerpt) Read more Here | 2021-03-19 12:05:42
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