JPM Is Going All-In On Blockchain

It has been nearly 18 months since JP Morgan CEO Jamie Dimon denounced bitcoin as a "scam" (while failing to disclose that JPM Securities was one of the largest buyers of a bitcoin-linked ETP traded in Scandinavia), and in that time JPM has surpassed Goldman Sachs, Citigroup and all other American investment banks to become the market leader in blockchain adoption.

Earlier this year, JPM introduced 'JPM Coin' a stable coin that the bank intends to use to facilitate the settlement of trades and transactions for its large corporate clients.

Now, the bank is taking a leading role in building out the Interbank Information Network, a heretofore little-known blockchain project that some 75 banks joined last year. From what we can tell, the project aims to be like a blockchain-based, decentralized alternative to SWIFT (which could rankle some at the Treasury).

Blockchain

Ultimately, JPM hopes the technology will allow it to cut down on the failure rate of international transactions, as well as allow it to streamline compliance (without, you know, dismissing the compliance staffers to Siberia). By building out INN, JPM hopes its international payments business for corporate clients will be better equipped to fend off the mounting challenges from TransferWise and Ripple.

JPM's pursuit of blockchain comes at a time when industry interest in the technology has "cooled", as FT put it. The function JPM is building on INN has a use-case that sounds plausible (unlike many of the fintech applications from the early days of blockchain that seemed purposely vague.

The banking industry generally has cooled on the potential of blockchain technology to revolutionise the industry, but JPMorgan’s head of global clearing, John Hunter, said development of the IIN continued apace with plans to expand its functions. More than 220 banks have now signed up to the original service of allowing data sharing on payments over network so that errors can be resolved quickly.

"The initial use case was around sanctions screening," he said. "Now we’re looking at the ability to do more at the point of settlement."

Mr Hunter said JPMorgan has developed a function that would verify in real time that a payment was going into a valid account, removing the potential of it being rejected days later because of an error in an account number, sort code, address or other aspect of the transaction.

"Banks straight through processing rates are in the mid-80s to the mid-90s. It’s that gap - the 5 to 20 per cent of payments - that have to be assessed by operations where we’re trying to alleviate some of that pain," he said. The system will be live in by the third quarter, for both domestic and international payments, though JPMorgan expects it to be more useful for international payments, where error rates are higher.

To encourage more banks to 'engage' with the ecosystem, INN, with JPM's help, is building a 'sandbox' of tools to allow developers to build more apps on top of the protocol.

So long as everybody commits to using JPM Coin as the medium of exchange, we imagine that will suit JPM just fine. As for what might come next on JPM's blockchain agenda, our guess would be: Adding 'blockchain' to the bank's name.