Visa Taps Blockchain for Cross-Border Payment Plan
October 21 2016 - 09:10AM
Dow Jones News
Visa Inc. is putting a bitcoin-style network to work as it aims
to take on a new market, the large and complex cross-border
payments made between businesses.
The new offering, Visa B2B Connect, will use technology
developed in partnership with Chain Inc., a tech startup in which
Visa is an investor. Chain is one of a handful of firms aiming to
use the same type of network that records moves of cryptocurrency
bitcoin, known generally as a blockchain, for other assets such as
stocks and payments.
Amid dozens of experiments by banks and other players, this is
among the first commercial products to result from an outpouring of
investment into blockchain, which some technology analysts have
warned will fail to live up to the hype generated by the notoriety
of bitcoin. Banks alone will spend more than $1 billion on
blockchain projects this year, according to Greenwich
Associates.
Visa and Chain's system represents a new effort to challenge the
Swift messaging network as the dominant method for moving large
sums of money across borders between banks on behalf of businesses.
Swift has been the subject of recent high-profile hacks and is
under intensive regulatory scrutiny.
But cross-border payments are still a lucrative business for
banks. Visa, which is trying to become a more relevant alternative
in the area, will be offering the product starting next year to its
member banks as a tool to offer their business customers. The
California-based network operator is best known for enabling
consumer credit and debit cards.
Currently, Visa also enables card payments for businesses, which
use them for small to medium-size purchases, such as employee
expense accounts. Commercial usage was about 11% of Visa's $1.3
trillion in payment volume last quarter.
But when businesses need to make payments that are hundreds of
thousands or millions of dollars, they typically turn to a bank to
wire the money or issue a check.
With Chain's software, known as chain core, Visa's system will
enable businesses and their banks to transfer value between each
other via Visa's rails rather than sending a message to each via
check or another means other that triggers intermediaries, such as
correspondent banks, to move the cash.
In that way the payments can move real time, Visa and Chain say,
much like a credit card or debit card provides an instant
transaction for a consumer and merchant. That could speed up
transactions and reduce the need for complex legal agreements in
case of payment failures.
"Even though Visa hasn't been as successful with cards for
commercial expenditure, wire and paper check-based mechanisms are
still slow, inefficient, and costly," said Jim McCarthy, executive
vice president for innovation and strategic partnerships at Visa,
in an interview. "The size of the opportunity in commercial
consumption expenditure is huge."
Because of the complexity and risk of these cross-border
payments, a handful of firms are trying to apply blockchain to
simplify it. Visa and Chain's system may end up competing with
products being developed by blockchain startups such as R3 and
Ripple, and with banks' own projects.
In a report in July, consulting firm Accenture PLC estimated
that there are $25 trillion to $30 trillion of cross-border
payments made through banks annually, across 10 to 15 billion
transactions.
But Accenture said that market "is not going to migrate to a new
commercial payments network overnight or even over five years, and
the degree of migration will be dependent on competition from other
alternatives."
Visa has already run a prototype of B2B Connect with 30 banks
globally in 10 countries. Earlier this year, Visa Europe also said
it would do early testing on a separate blockchain network to
connect several banks in Europe.
Adam Ludwin, co-founder and chief executive of Chain, said that
blockchain technology needs a vehicle like Visa, which already has
a network installed in thousands of banks. "The market has ossified
around existing workflows," he said. "It's not enough to build a
better mousetrap, it's how to get it to the market."
Chain, based in San Francisco, last year raised $30 million in a
round from Visa, Capital One Financial Corp., Nasdaq Inc., the Citi
Ventures unit of Citigroup Inc., and others. It also has
venture-capital backers including Khosla Ventures and Thrive
Capital.
Write to Telis Demos at telis.demos@wsj.com
(END) Dow Jones Newswires
October 21, 2016 08:55 ET (12:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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