Tag Archives: Payments
NEW YORK (Reuters) – Banks are unlikely to use distributed ledgers to process cross-border payments for now because of scalability and privacy issues, according to Ripple, one of the most prominent startups developing the technology.
“I will concede, we haven’t gotten there yet,” Ripple’s chief cryptographer David Schwartz said in an interview.
Banks have been vocal about taking steps toward deploying the technology originated from cryptocurrencies to make processes like international payments faster and cheaper.
Several banks have tested or deployed a system Ripple developed for international payments that uses a “bi-directional messaging” that can eventually plug them into distributed ledgers, but xCurrent’s technology itself “is not a distributed ledger,” Schwartz said.
XCurrent was used to build Banco Santander SA’s (SAN.MC) international money transfer service One Pay FX, which was launched in April and hailed as one of the first concrete uses of “blockchain-based technology.”
Santander, which is an investor in Ripple, declined to comment.
While xCurrent uses cryptography, each party using the system does not have access to a shared ledger, as is the case with distributed ledgers like ethereum or Hyperledger Fabric.
“We started out with your classic blockchain, which we love,” Marcus Treacher, senior vice president of customer success at Ripple said in an interview. “The feedback from the banks is you can’t put the whole world on a blockchain.”
Distributed ledgers, an umbrella under which so-called blockchains fall, are immutable databases maintained by a network of computers rather than a centralized authority and secured by advanced cryptography.
The technology’s proponents say shared record keeping boosts efficiency and reduces data discrepancies, but distributed ledgers are not yet scalable or private enough for banks, Schwartz said.
XCurrent uses an immutable “interledger” protocol which Ripple says improves on existing payment networks because it offers instant settlement.
“What we hear from many of our customers is that it’s imperative to keep their transactions private, process thousands every second, and accommodate every type of currency and asset imaginable,” Schwartz said. Ripple’s approach is what has enabled it to move beyond tests with banks, he added.
Founded in 2012, Ripple also offers a system called xRapid that works with the distributed ledger behind XRP, the third-largest cryptocurrency by market cap after bitcoin and ether. Ripple holds a large share of XRP.
The price of XRP and other cryptocurrencies soared last year, in part on expectations that their technology will be applied to processes including transferring value between financial firms.
xRapid and XRP are not being used by banks, but have been recently tested by money transfer companies Viamericas and MercuryFX, according to Ripple.
Reporting by Anna Irrera; Editing by Meredith Mazzilli
Here we go. J.P. Morgan Chase has applied for a patent to facilitate payments between banks using the blockchain.
The patent was originally submitted in October, but the application was made public by the U.S. Patent and Trademark Office on Thursday. It outlines a system that would essentially use distributed ledger technology, such as blockchain, to keep track of payments sent between financial institutions.
In the application, J.P. Morgan notes that cross-border payments require “a number of messages” that must be sent between the bank and clearing houses involved in the transaction. This often results in delays and a restricted availability to the funds. Rather, the transaction on the blockchain would eliminate high costs, provide a system for accurately logging the transactions, and process payments in real time with a verifiably true audit trail.
This may come as a surprise given J.P. Morgan CEO Jamie Dimon’s tirade about Bitcoin several months ago, suggesting the cryptocurrency is “a fraud” and that he would fire any employee trading Bitcoin for being “stupid.”
But Dimon was careful to distinguish between cryptocurrencies and the blockchain because, well, J.P. Morgan has actually built its own blockchain on top of Ethereum. The bank is also one of 86 corporate firms to play a role in forming The Enterprise Ethereum Alliance, an open-source blockchain initiative. The idea of the EEA is for big banks and tech companies to come together and build business-ready versions of the software behind Ethereum, a decentralized computing network based on digital currency.
The patent filed in October is reminiscent of another Bitcoin-style payment system J.P. Morgan tried to patent in 2013. Although the patent was reportedly rejected, it’s fascinating to see the bank lay out some of the problems with the existing payment structure. For instance, “Furthermore, to date, there is no efficient way for consumers to make payments to other consumers using the Internet. All traditional forms of person-to-person exchange include the physical exchange of cash or checks rather than a real-time digital exchange of value. In addition, the high cost of retail wire transfers (i.e., Western Union) is cost prohibitive to a significant portion of society.”
Let’s see what happens the second time around.