Banking with Blockchain: JPMCoin & Onyx
With all the difficulties in 2020, there have been a few breakthroughs that make this year one to remember in a positive light. After a decade of speculation and testing, blockchain and cryptocurrency are about to become commercially viable technologies in banking applications. The excitement comes from JPMorgan Chase, one of the largest banking institutions in the US, using its digital token, JPM Coin, to send cross-border payments for clients. The multi-year project has successfully built a separate platform named Onyx. The announcement was made at the end of October by Takis Georgakopoulos, global Head of Wholesale Payments.
Blockchain technology has been hyped as a breakthrough that will impact multiple industries, not just financial services with payments. In the last 10 years, there has been limited progress in real results towards mass adoption and viability. The market for venture capital has taken noticed and lowered funding by 35% to less than $3B last year.
JPMorgan Chase’s Onyx (lead by its new CEO Umar Farooq) can impact blockchain and cryptocurrency sectors at a macro level by showcasing that widespread adoption is within reach. On the heels of PayPal’s recent announcement welcoming crypto custody and transactions on their platform, a general trend is starting to form in this new decade.
Despite innovation in banking, wholesale payments (especially international transfers) are still complex and expensive opportunities to solve for globally. Over $5T is moved on a daily basis by JPMC through cross-border transfers. The current international infrastructure of correspondent banks, legacy bank networks, and lack of real-time verification needs a seamless solution — one that mitigates against fraud and rejections.
In 2017, JPMorgan created a network of over 400 financial institutions and companies as part of the Interbank Information Network (or Liink). The group was initially launched to address this issue with payment validation before initiating transfers. This additional step is critical in minimizing costly errors with money movement by confirming proper info upfront - for banks and firms within the network.
The verification can come with a nominal fee (in comparison to return costs or current delays in researching funds in transit). The combination of Onyx and JPM Coin can help participants save over half of today’s costs of international payment processing — all in a fraction of the settlement time.
What’s possible with this new platform? Onyx can help central banks across the world launch their own digital currency and payment rails. For countries open to cryptocurrency (like those in Asia), a stable model that is proven at enterprise and government levels can quickly boost mass adoption globally. For companies as clients, Chase’s coin is already being utilized for international payments by a global tech firm; other customers are currently being added as well.
Overall, multiple indicators point to blockchain now progressing forward in the Gartner Hype Cycle past expectations and disillusionment towards productivity and adoption. The next 3-6 months will be the most critical to determine the degree of success in the early commercialization of blockchain by a national bank. A proven model and process from Onyx would be the best global proof of concept for banks, governments, and enterprises.