From concept to pilot to corporate payment game changer.
Umar Farooq, CEO of J.P. Morgan’s Onyx, told Karen Webster that peer-to-peer (P2P) private blockchain networks can help streamline information flows tied to cross-border payments and remove the complexities tied to legacy systems.
The conversation took place against the backdrop where, late last month, J.P. Morgan said it had established Onyx, a new business unit dedicated to blockchain and digital currencies. And in signs that we might be entering a new era for commercial payments done digitally, the banking giant said that for the first time it has a paying client for its JPM Coin.
None of this sprang fully formed from the head of Zeus. As Farooq noted to Webster, the pilots for the digital initiative (and commercialization) stretch back over several years.
“When we started, it was literally sort of ‘on the side,’” he told Webster of the dozens of proofs of concept that took shape. “‘Let’s see if this thing has any legs. Does it go anywhere or not?’”
The most readily adaptable initiative has been its blockchain-based Interbank Information Network that launched in 2017, recently rebranded as Liink, where more than 400 participants have signed up (among them the largest banks in the world) to address delays inherent in cross-border payments.
The ledger, tied to blockchain, allows banks to exchange data about payments, resolve compliance inquiries and validate accounts.
Liink, J.P. Morgan said last month, was folded into Onyx.
Ready To Kill The Check?
Might the advance of blockchain, of better and secure data flows tied to cross-border payments, finally kill the check?
“We’re trying to put a dent in them,” Farooq said of checks, adding, “I’m not sure if we can eliminate them … because in the U.S., there are certain people [who] still use checks often.”
Checks have proven to be sticky, he said, as the money and infrastructure for carrying information are actually quite bifurcated. They exist as relatively easy ways to keep track of what’s being paid for and why (especially when, say, healthcare payments can be so complicated), and they can be kept at hand for reference purposes in scanned copies or kept in files.
But what happens when hundreds of millions of corporate payments cross borders?
Farooq said that’s when the trouble — and pain points — scale quickly. J.P. Morgan itself, the company has said, moves $6 trillion daily in payments.
Here, then, is where blockchain can be most readily deployed into use cases that streamline international payments — and where J.P. Morgan’s “endpoints,” as described by Farooq, are large corporates.
But the ecosystem has room to expand.
On the global level, Farooq noted, using blockchain as part of an application to confirm details before payments are made can be a game changer, especially for large-value payments.
Even though a small percentage of those payments get stuck, it’s painful to the clients when it happens.
“Items can get stuck or delayed for reasons like the format is wrong or the name doesn’t match,” said Farooq.
Digitizing the information across the blockchain and function of printing and sending checks saves money and time. The receiver sees margins and cash flows improve as they don’t have to open up those envelopes, and they don’t have to have as many points of contact (literal ones) to get the checks scanned or funds ultimately into corporate accounts.
Drill down a bit and getting rid of the check translates into cost savings on both sides of the equation — for the company making the payment, and the company receiving it. (In the middle stand the lockboxes and processing facilities run by banks like J.P. Morgan.)
Digitization, said Farooq, takes a lot of waiting time out of the system. Echoing comments made in the past by J.P. Morgan CEO Jamie Dimon, Farooq noted that historically, banking had been built on friction, but we’re rapidly moving to a frictionless state.
Complements — But Not Disruption
Onyx, and by extension Liink, are not indicative of a J.P. Morgan strategy to disrupt other large-scale initiatives such as real-time payments — but instead can make those new endeavors more efficient when real-time payments schemes ultimately do move across borders (right now there’s no real interoperability across real-time payments deployments, he said).
But as Farooq cautioned, “You have to figure out what you’re using blockchain for.”
Cryptocurrencies, for example, have had a problem scaling as payment methods because of volatility and the significant amounts of energy needed to “mine” the coins themselves and transact. Permissioned blockchains like Liink are more readily scalable to expand and include large eCommerce companies or even enterprise resource planning (ERP) platforms.