JPMorgan's move to cryptography puts the rest of the industry in the spotlight



NEW YORK (CNN) –

JPMorgan Chase's Bright New Digital Part Could Changehow banks approach blockchain and cryptocurrency.

The first applications of JPM Coin are not revolutionary. JPMorgan said last week that this would facilitate the instantaneous transfer of payments between institutional accounts. JPM Coin is only a prototype that can only be used by some of the bank's client companies.

But last week's news attracted a lot of buzz becausecould force other banks to follow with large blockchain or encrypted versions.

"More banks will take it seriously," said Param Vir Singh, professor of business technology at Carnegie Mellon University.

The financial industry is largely in agreement that money should flow around the world faster and more efficiently.

"Billions of dollars are spreading around the world via an outdated system of slow payments and additional fees," CB Insights analysts said in a recent report.

That's why banks in recent years havemanifested interest in digital parts and blockchain, a large digital tamper-proof book.

The Blockchain is particularly attractive because it could allow banks to make payments faster and more securely, using technology that CB Insights believes would significantly reduce processing times and reduce the need for third parties engage in transactions.

"There are many ways to optimize payments," said John Velissarios, Accenture blockchain technology manager. "The creation of cash is certainly one of them."

With the launch of JPM Coin, JPMorgan has shown its willingness to overcome this transition, despite itsprevious skepticism.

This could push other banks to show that they are also in the game. Singh said that banks that have a large number of institutional clients, such as Citigroup, will feel the most pressure.

Citi has a large cash and business solutions unit that manages cash and paymentsfor companies operating in several countries.

The bank actually tested a "Citi coin" in 2014 and 2015 in an innovation lab in Dublin, Ireland.The bank built the pilot to understand how the money could possibly be transferred into the blockchain, according to Manish Kohli, global head of payments and receivables at Citi.

It has never been shown to customers, but Kohli said the experience has provided a better understanding of Citi's current approach to digital parts and blockchain.

The bank decided that it made more sense to help set up national payment infrastructures globally to support real-time payments and work directly with customers who want to join the bank. blockchain to their payment streams, he said. That's what the bank did with Nasdaq and Allianz, for example.

"Every bank in the world must be able to speak and communicate and be part of this system", rather than proprietary systems that only benefit "a handful of banks" and are not universally adopted, Kohli said.Citi declined to comment on JPM Coin in particular.

Other financial institutions are also thinking about the best use of this technology. Bank of America, for example, has 82 US patents or published patent applications related to crypto, blockchain and related technologies, according to Envision IP, a law firm specializing in intellectual property research. This is more than any other major bank or financial services company examined by the company.

The hype surrounding JPMorgan's deployment of JPM Coin is partiallyabout timing. The excitement sparked by crypto is more moderate than at the end of 2017, when prices for bitcoin soared.

"If this announcement had been made a year and a half ago at the height of the craze for crypto, I'm not sure of the scale of the impact," Arieh Levi said. , analyst at CB Insights.

The fact that JPMorgan, the largest bank in the country, supports such an enterprise at the moment is very promising, he added.

JPMorgan will have a boost because of its size – and because it's a pioneer. This could help to attract or retain customers.

"The more institutional clients you have, the more power you have [and] the more you become valuable, "said Singh of Carnegie Mellon," This fight will take place in the next few years. "

It's not clear whether Citi will relive Citi Coin or Wells Fargo will launch Wells Coin in response to JPMorgan. Singh predicted that more banks would throw tokens to mix, and a consolidation would follow.

"Ultimately, a platform will win," he said.

It's not just big banks and financial services companies that have to agree. JPM Coin alsoputs a spotlight onRipple, a startup with its own payment and cryptography network using blockchain technology.

Ripple said that he's aiming to dislodgeCompany for global interbank telecommunications, or the Swift network. This is the system that banks use to communicate securely to facilitate global payments.

CEO Brad Garlinghouse fired JPM Coin on Twitter. But questions as to whether it is a threat could continue to arise.

There are also consortia that have allowed financial institutions to search together for blockchain applications, such as R3, whose members include BNY Mellon, State Street and BNP Paribas.

Joining these platforms has been an "inexpensive way to explore technology without investing too much money," said Levi of CB Insights. However, banks may choose to re-emphasize the more publicized approaches now that JPMorgan has asserted.

JPM Coin is still in its infancy and its limitations remind us that we are at the beginning of a radical change in the way money is transferred.around the world. But it certainly helps to create a stir.

"No one wants to be left behind," Levi said.

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