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Visa Taps Blockchain for Cross-Border Payment Plan

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Visa Taps Blockchain for Cross-Border Payment Plan

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.

 

 

wsj.com

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