The FinTech space is oversaturated with talk of blockchain technology. Today, industry players seem to agree that innovators are slowly moving from conceptualization towards testing actual solutions.
But late last week, Visa announced that it will be rolling out Visa B2B Connect, a platform for banks to make payments and settle funds across borders using Chain Core, the blockchain infrastructure developed by Chain. According to Chain CEO Adam Ludwin, the solution will be available to banks sometime next year — no pilot phase, no small-scale testing.
Considering some of the concerns banks and businesses have voiced for blockchain technology, it's a surprise Visa is betting so big on it. But Ludwin tells PYMNTS that those doubts may really not be as big as they seem.
One of the biggest areas facing skepticism with blockchain technology and B2B payments is the idea that corporates don't need real-time payments, as would be provided by Visa B2B Connect. After all, corporate payers generally depend on that 30-, 60- or 90-day grace period between when they receive an invoice and actually pay their supplier.
Ludwin said same-day and real-time payments can actually help corporations extend their payment terms even longer, and the example he gave is pretty obvious: "If I owe you money in 30 days, I want to pay you on the 30th day," he said. Today, businesses that try to adhere to a 30-day payment term need to send their payment on day 27 or so to ensure the funds have enough time to get to the supplier. Real-time payments, however, enable a company to wait as long as they want to without forcing the supplier to get paid late.
"There is now an expectation — and, in fact, a frustration — that [real-time payments] aren't already a reality," the executive said of the B2B payments industry. The concept of an electronic payments system is an "abstraction," he added, because the reality is that the world operates on a system that can send payment instructions digitally but cannot actually move value digitally.
"That triggers a still fairly manual, multi-step, bank-to-bank rippling of updates to different, siloed ledgers," added Ludwin.
Convincing businesses to use faster payment technologies for their supplier payments is one thing; convincing firms and their banks to use blockchain to fulfill those faster payment demands is another.
Ludwin argued that blockchain has a few steps up on other payment rails, like ACH. In addition to the technology being able to actually move value, as opposed to simply make a request to move value, electronically and in real time, blockchain means greater transparency into where that value is at any given time.
"The payers and the payees are going to have greater visibility and transparency into transactions," he said. "With an international wire transfer, or even a domestic check payment or ACH, when you hit send, you don't really know where that payment is and its status." It adds a far greater level of predictability for payers and payees, he added.
Blockchain also negates the need for a hierarchy in the payment system, both among banks and among corporates.
"With the correspondent banking system, most FIs don't have relationships with each other," the executive said. "But that ultimately creates a bottleneck for the payer, the corporates connected into the banks." Plus, some of the smaller businesses that don't necessarily have relationships with large, multinational banks can be hit with unexpected fees or unfavorable exchange rates.
On the banking end, blockchain will create a shift in how financial institutions not only participate in the cross-border payments process but remain compliant and secure, while processing and settling payments in mere seconds. That's largely where the Visa brand comes in, said Ludwin. Visa's 17,000-plus banking partners all trust Visa's payments network. And with distributed ledger, the information that can accompany a payment will likely be able to support banks' compliance and security needs by providing data about that transaction.
Of course, skeptics of blockchain technology could be right: It will probably take time not only for blockchain to be trusted but for it to become a widespread option for banks and other firms making and receiving payments. According to Ludwin, though, convincing a business to pay its supplier via real-time blockchain technology could be one of the easiest parts about blockchain adoption.
"Behavior change has more to do with benefits than tech," he said, adding that a corporate treasurer doesn't necessarily care how a technology works. They simply need to know that it works better than the alternatives. Visa will be promoting its B2B Connect platform on its benefits, he said, and the companies will be working to ensure that the platform makes any behavior change needed on the corporate side worth it. That means integrations with existing ERP and accounting systems, offering white-label options and so on.
"It's so corporate treasurers have very little distraction to their existing workflow to start getting the benefits," he said. "Will there be a change? Yes. Will that change be outweighed by the benefits? Yes."
Chain isn't placing all of its eggs in the Visa basket. Today (Oct. 24), the company is also announcing that its blockchain infrastructure will be open to developers as a free API, encouraging other innovators to develop their own solutions using Chain Core and signaling even more faith in the demand for blockchain technologies.
That sentiment is a huge bill of confidence for a disruptive technology that has its fair share of doubters. The Visa brand name will surely help FIs make the leap into integrating this type of solution, and Ludwin added that Visa's FI clients have already expressed significant demand for a tool like B2B Connect. Only time will tell whether it will gain the traction Chain and Visa anticipate, but with a rollout date set for next year, it won't take long for the market to find out.