Blockchain may be building bridges quicker than expected. Quite possibly, the biggest blockchain news this week was that Swedish bank SEB announced that intends to build a blockchain channel between New York and Stockholm to enable customers to make real-time transfers, as soon as next year. The conduit between the two is San Francisco-based startup Ripple, which is known for enterprise cross-border applications.
Paula da Silva, head of transaction services at SEB, said in a statement that SEB has plans to include further geographies — besides New York and Stockholm — where the bank operates.
Experts say a private blockchain like SEB is announcing may be limited in scope and consequence if it’s just a standalone arrangement. Kristian Gjerding, founder and CEO of CellPoint Mobile, added that, if the blockchain initiative extends to other banks, the level of security provided by the blockchain is inherent without the need for a middle service, such as the ACH network.
“If this kind of channel can open up to and connect to other banks, the ‘handshake,’ so to speak, is built in, and as a consumer or business, I can transfer money much more quickly and securely,” said Gjerding. “That will be the long-term benefit.”
That said, those longer-term implications — some experts say — may cause SEB’s foreign exchange income to dip.
“However, foreign exchange and cross-border transactions are prime targets for disintermediation,” said Andy Schmidt, principal executive advisor at CEB. “Better for SEB to cannibalize itself and gain firsthand knowledge of the various applications of blockchain than have to react to third-party disintermediation later on.”
But banks aside, credit cards may have no choice but to get into the blockchain game. In fact, the sooner the better for a variety of reasons.
Nasdaq writer Prableen Bajpal said that card companies no longer have a choice but rather need to embrace the technology already, which would bring down a slew of related costs and pump up efficiency. Citing an RBR report, the global card payments market last year was ruled by China’s UnionPay, Visa and Mastercard, which collectively accounted for nearly 90 percent of the $22 trillion spent.
That sentiment, however, isn’t felt as strong by all experts.
Victor Lysenko, VP of blockchain at Acronis, said that card companies are like so many other industries in that they are experimenting with blockchain, trying to determine and disseminate how and if blockchain will indeed be a benefit to their business.
"Blockchain being effective for applications with multiple parties involved — that’s already a fact,” said Lysenko. “In this scenario, while it would be fun to observe the trusted intermediaries implement the technology aimed at ridding of the trusted intermediaries, it’s likely that blockchain solutions will help them with various projects that require incorporating multiple parties.”
However, Lewis Cohen of Hogan Lovells said the the credit card industry is a natural fit for blockchain technology.
“The critical question will be how quickly the perceived benefits can match or exceed both the direct and indirect costs of implementation of a new form of technology in an already well-developed and successful ecosystem of card issuers, merchant voucher acceptors and payment processing platforms,” said Cohen.
One way the adoption of blockchain solutions has much potential, Cohen said, is in creating digital financial assets that could be financed through securitization and other techniques in a way that’s much more cost-efficient.
Gjerding sort of agreed, but not fully. He said that, while credit card companies do not have to accept blockchain, they will have to adopt some sort of blockchain infrastructure if they want to stay competitive.
“It’s more of a commercial question than it is a question of being forced into the blockchain environment,” said Gjerding. “Frankly, I think several other new services in the blockchain domain — ID authentication and contracting verification, as example — will happen much quicker.”
But speaking of identification and verification, that’s where blockchain may indeed hold so much potential.
Lysenko said that, while blockchain isn’t directly linked to privacy or fraud, it can help banks, payment systems, insurance companies and more businesses reduce the number of fraud incidents.
“Naturally, for applications that require client authentication, such an option can be arranged — just like it’s possible to identify/leave unidentified clients of traditional money transfer systems,” said Lysenko. He offered the blockchain-related cxample of Acronis developing a product — the Consortium Data Sharing Platform — allowing companies to share information, including data on fraud attempts. “Blockchain is perfect for creating solutions when multiple entities can exchange information without creating/involving trusted intermediaries.”
And, down the line, this type of application may indeed be helpful for a variety of industries — not just banks and credit cards — but it may take some time with adoption and implementation.