According to a report by Financial Times on Thursday (Sept. 1), Visa is taking initial steps toward changing the market for payments from one bank to the next by inviting lenders to try out a system for sending money over blockchain. Visa, which the report said has been testing blockchain technology for a year-and-a-half, is teaming up with BTL Group, the digital payments startup, to use its technology for processing payments between banks.
Financial firms are attracted to blockchain technology because it allows transactions to be recorded and verified electronically without a central ledger. Hendrik Kleinsmiede, cofounder of Visa Europe Collab, Visa’s innovation hub, wrote in a blog post that the project aims to “reduce the friction of domestic and cross-border transfers between banks.”
“We’re now inviting a small number of European banks to participate in the project alongside us and BTL. Participating banks will be able to connect to the network and send funds to other banks in the network across multiple currencies,” he wrote.
According to FT, the idea behind the blockchain project is to reduce costs, speed up the time it takes for settlement and lower the credit risk in the market when moving money between domestic banks and when doing it across borders. The report noted it may be a challenge to the SWIFT interbank payment system, which is the main messaging system banks use to handle big money transfers. The blockchain project at Visa is being developed with smart contracts, which is code written onto the blockchain that automatically carries out certain actions. It will handle a lot of the regulatory and compliance requirements of interbank transfers.