After Long Courtship, Global Finance Is Now Ready To Tie The Knot With Blockchain
Banks are moving their core systems onto blockchain, changing how money travels across borders and laying the groundwork for a safer global payments network.
The Gist
The banking industry is undergoing a significant transformation as it shifts from traditional methods to blockchain technology.
- JP Morgan's launch of JPM Coin demonstrates the imminent adoption of blockchain in banking.
- This change will enhance transaction efficiency and security while maintaining a familiar experience for customers.
Over the past two decades, banks across the world have moved from passbooks to internet banking first, then phone banking, and now to mobile apps and even WhatsApp.
That shift took time, but it changed how people transacted and used their money.
But just when we thought banking technology cannot outdo itself, we hear that the financial world is preparing for another transformation. This time at the architecture level.
Last week at a fintech conference in Hong Kong, Standard Chartered CEO Bill Winters said that most global transactions will eventually run on blockchains.
Much of the work is technical, but it is changing how money moves between two parties and across borders.
In fact, some transactions have already started happening on the blockchain, and banks and regulators have been preparing for this shift for a while.
In this case, the change may not be obvious to ordinary banking customers. But this gradual upgrade, happening across different parts of the financial system, will make sure that their money is in safer hands.
The Shift Is Already Here
Winters’ remark does sound like a long-term view, but JP Morgan has shown this future is closer than we think.
Last week, the bank launched JPM Coin on the Base blockchain. It is a token backed by actual dollar deposits.
The coin settles transfers in seconds, and it works at any hour. Also, it allows money to move directly, without waiting for banking windows, approvals, or cut-off times.
JP Morgan has been testing this system with Mastercard, Coinbase, and B2C2 — a global crypto liquidity provider. The bank now plans to extend the token to more currencies and more blockchains.
When a bank of this size pushes its core payments onto blockchain rails, it surely points to a shift that is no longer waiting to happen in the distant future. It is already here.
We have written in the past about how JP Morgan has been aggressively adopting blockchain in other areas such as bringing one of its private-equity funds onto its in-house blockchain Kinexys, and even completing a transaction on a public blockchain.
Other large institutions such as Citigroup, Santander, Deutsche Bank and PayPal are also building similar systems.
Money Moves Differently
The biggest change because of blockchain is not the coin or the token itself. The change lies in the path money takes.
Today, a simple international payment passes through many levels — messages, approvals, reconciliations, and long settlement queues.
With blockchain-based systems, the road becomes a direct highway. The settlement happens without waiting for multiple checks. Apart from that, everyone involved in the transaction looks at the same record regardless of their location or internal system.
As a result, errors go away, and tracking of transactions becomes easier.
Banks and regulators also benefit from this. They get better and faster reporting of all digital transactions and events.
For example, if the RBI suspects a bank of any wrongdoing, it won’t need to carry out a days-long audit of the bank. All the data will be visible to it in real time.
For the customers, however, nothing changes. Everything would look the same. But the movement behind the scenes becomes faster, more efficient and, most importantly, fraud-proof.
The Architecture Change
Winters called this a “complete rewiring.” That is accurate. The shift is happening at the architecture level. Not at the user-interface level or the branch level. At the level where money is tracked, verified and settled.
Banks are figuring out how their back-end systems talk to blockchain networks, while regulators are studying how rules fit into this new flow. Similarly, payment networks are preparing for faster movement across borders.
None of this happens in a single launch. It moves through steady upgrades.
This is what the next decade may look like. Not dramatic disruption. Not overnight change. A constant tightening of the pipes through which money travels.
Winters’ remark in Hong Kong and JP Morgan’s launch of JPM Coin show that the industry is ready to tie the knot with blockchain.
This series is brought to you in partnership with Algorand.
