Visa, Chain to Launch Blockchain Payments System

Visa is partnership with Chain to launch a new business-to-business
(B2B) payments platform using blockchain technology.

The new platform, Visa B2B Connect, will be built using Chain Core, an
enterprise blockchain infrastructure that is designed to facilitate financial
transactions on scalable, private blockchain networks.

The plan is for Visa to use this technology to develop a near real-time
transaction system designed for the exchange of high-value international
payments between participating banks on behalf of their corporate clients.

The platform will be managed by Visa end-to-end and the firm says it
will facilitate a consistent process to manage settlement through Visa’s standard
practices. Visa B2B Connect is due to be piloted in 2017.

“The time has never been better for the global business community to
take advantage of new payment technologies and improve some of the most
fundamental processes needed to run their businesses,” says Jim McCarthy,
executive vice president, innovation and strategic partnerships at Visa Inc.
“We are developing our new solution to give our financial institution partners
an efficient, transparent way for payments to be made across the world.”

Adam Ludwin, CEO of Chain, notes that although Visa is a major player in
the payments space, commercial payments only account for roughly 10% of the
firm’s payments business and therefore there is significant headroom for the
company to grow this segment.

“When we talk about Visa as a network, there’s actually two distinct
networks in operation: there’s a lower case and an upper case network. The
lower case network is the foundational one that contains all of the
relationships, the licenses, the rules, the data, the fraud screening, the
settlement infrastructure, the messaging infrastructure, etc. Then on top of
that there is the Visa branded network that we all know.

“But with all the relationships, banks are still struggling to provide
their corporate clients with good solutions for international payments, and
this is for a variety of reasons, some of which are technological and some of
which are due to the business models currently in place.

“What we’re doing is combining Visa’s lower case network infrastructure
with a clean sheet of new architecture that will allow for us to create a
direct exchange of value between banks as opposed to a multi-step instructional
basis, which is how the correspondent banking system works over something like
Swift. So we’re adding an enabling layer that we’ve paired with the
infrastructure that Visa already has in order to create Visa B2B Connect,” he
says.

Although it seems that systems like Visa B2B Connect have the potential
to disintermediate firms like Swift, Ludwin insists that these firms still have
a significant role to play in the financial services industry.

“Swift isn’t going away, correspondent banking isn’t going away and FX
markets aren’t going away,” he says. “But the mismatch between the expectations
of banks that payments should occur in a fast, predictable, secure and
transparent manner and the reality right now means that it is indisputable that
there is demand for a better international payments system than the one we have
right now. Everyone who wants to play in this space needs to continue evolving
alongside the demands of corporates and corporate treasurers.”

Ludwin argues that blockchain technology is uniquely suited to help
improve international payments systems, because it creates an immutable network
that allows transactions to be processed direct from bank-to-bank.

“The closest analogy would be if a bank wrote another bank a cheque and
that bank cheque was delivered instantly and was signed by cryptographic keys
that validated the identity of that issuing bank and it was deposited with the
other bank instantly,” he explains.

Ludwin says that without a cryptographically signed and immutable ledger
shared between counterparties, then the only real improvements that can be
added to the current system of electronic messaging would be to try and speed
up the reconciliation of those messages or to try and run all the messages
through some form special intermediary. The problem with the latter of these
improvements, he says, is that it would be challenging for an intermediary to
keep pace with the vast volume of the messages going through it.

“In other words, the security features that would be needed aren’t
there. So you can’t really get instant, final and immutable data with siloed
databases and you can’t get it with centralised databases either because of the
security around it, it would be too risky.

“This is why firms need a distributed ledger where the senders are
authenticating transactions and then putting these transactions on the ledger,
which can’t be changed and therefore gives absolute confidence to the receiver
that they can take action on good funds,” says Ludwin. 

 

galen@profit-loss.com 

@Galen_Stops

@Profit_and_Loss

Galen Stops

Share This

Share on facebook
Facebook
Share on google
Google+
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on reddit
Reddit

Related Posts in