On April 21, it was revealed that JPMorgan Chase (JPM), the United States’ largest bank with over $2.62 trillion in assets, is planning to widen the use of its blockchain system.
Specifically, JPM is adding new features to its Interbank Information Network (IIN), which is now used by more than 220 banks across the globe. With the JPM Coin launched earlier this year, it seems that the U.S. financial institution is increasingly betting on blockchain, pushing crypto closer to mainstream adoption. Specifically, the JPM CEO noted that he is pro-blockchain, despite the excessive hype around the technology, and that the technology serves as a better replacement for certain online databases:
“Blockchain is a real technology — it’s just a database we can all access that’s kept up-to-date.”
Indeed, JPM’s experiments with blockchain date back to 2016, when the banking behemoth published a white paper for Quorum, its private blockchain platform built on the Ethereum protocol. It has also been tested with a number of high-profile players, including National Bank of Canada and Goldman Sachs Asset Management. In March 2019, JPMorgan Chase announced that it was considering making Quorum an independent entity in a bid to attract more partners that could be reluctant to deal with JPM directly if they are competitors of the bank.
IIN: the ever-growing, blockchain-powered international network of banks
The IIN, in turn, is JPM’s peer-to-peer network powered by Quorum. Suresh Shetty, blockchain technology lead for IIN, explained:
“Historically, correspondent banks communicate one-way, bank-to-bank, but we have transformed their interaction.
As of March 2019, more than 220 banks worldwide have signed up as members of the IIN, including banking powerhouses such as Sumitomo Mitsui Banking Corporation (SMBC), Crédit Agricole — the world’s largest cooperative bank by turnover — and Banco Santander. The network is expanding at a swift pace: More than 60 banks joined it just within the past few months, given that the IIN consisted of 157 member banks as of January this year. He told Cointelegraph:
“IIN is not a competitor to Ripple unless it begins to sweep all the banks in the world onto their network, which could be difficult for JPM given their historical reputation. Ripple, Circle, and Transferwises advantage may be that they are third-party intermediaries, not banks themselves.”
However, the main priority for the INN is not to facilitate cross-border payments with stablecoins or its own cryptocurrency (which is what Ripple is actively trying to achieve with its similarly sized RippleNet), but rather to tackle the current system’s downsides with a blockchain-powered solution. Attempts to construct some new way of transacting on blockchain look to us like a solution in search of a problem,”
Sungmahn Seo, head of Europe, Middle East and Africa payments and foeign exchange at JPMorgan Chase, told Euromoney in October 2018, outlining the INN’s primary goal:
“However, when a cross-border payment does get stuck for whatever reason, that can get quite painful. We want to make resolving stuck payments much simpler and much easier, and that is about easing access for the right parties to the right information.”
According to Seo, the U.S. banking giant receives 100,000 to 200,000 enquiries regarding stuck payments every year, and most of them are international. He described the hurdle it entails for banks in greater detail:
“There can be many steps between multiple correspondent banks in sending a payment from the US to China, for example. And when a query pops up, the question becomes: which bank has the full and complete information? Banks start sending emails but some banks don’t like to respond that way because email may be insecure. So, then it’s phone calls between banks in very different time zones. A payment that should have taken minutes can take many days to complete as requests for information ping-pong between the banks.”
Thus, instead of handling cross-border payments like Ripple-created XRP and other SWIFT-killers that aim to overtake the conventional money transferring structure and put it on blockchain rails, the IIN is merely an encrypted distributed ledger network that allows participants to identify themselves and share information necessary for sending money — and not necessarily large amounts — to each other. Notably, neither Ripple nor the IIN and has revealed publicly exactly how their systems work, Eyal Shani, blockchain researcher at Aykesubir, pointed out in a conversation with Cointelegraph. As John Hunter, JPM’s head of global clearing, told the Financial Times, the IIN members will be able to instantly verify whether a payment is heading to a valid bank account — as per the new update, scheduled to go live by the third quarter of 2019. It’s that gap — the 5 to 20 percent of payments — that have to be assessed by operations where we’re trying to alleviate some of that pain.”
Eyal Shani believes that the use of smart contracts and blockchain will indeed allow the IIN to minimize the number of such errors:
“By tokenizing the system and enabling the use of modern smart contract and flexible coding, the IIN could solve better and faster compliance problems and other payment errors. The most meaningful impact will probably be three to five years away and mostly on trade finance.”
Notably, the Financial Times report also revealed that JPM is planning to attract more fintech startups to work with the IIN network’s structure.