How will rivals respond to JPM Coin?
JPMorgan Chase’s revelation Thursday that it will operate a proprietary cryptocurrency may spur other large banks to act faster on their blockchain initiatives.
Banks such as Barclays, Bank of America and TD Bank have filed multiple blockchain patents over the years, but have yet to publicly announce their plans for the technology.
Bank of America holds the most blockchain-related patents in the financial industry, with 43 at the end of the 2018, according to an analysis from Envision IP. While BofA declined to discuss its plans, observers viewed JPMorgan’s announcement as a watershed moment for blockchain-based initiatives for banking because of the institution’s status.
“What’s most interesting is how their competitors, I would expect, follow suit if they haven’t already been thinking about these products,” said Ethan Silver, chair of the broker-dealer practice at Lowenstein Sandler. “I would think that this encourages other banks to do the same.”
How exactly that happens is unclear, though patent filings and other public announcements and initiatives provide some clues.
Last year, Barclays filed a pair of patents related to funds transfers and data security. One patent showed how blockchain could be used to store sensitive customer information related to know-your-customer requirements. The second illustrated how distributed ledger technology could be used to facilitate cryptocurrency transactions.
Bank of America has filed similar patents for such use cases.
JPMorgan, which has not filed any blockchain-related patents, has demonstrated a different use case altogether, but one the industry is trying to solve.
"We believe that JPM Coin can yield significant benefits for blockchain applications by reducing clients' counterparty and settlement risk, decreasing capital requirements and enabling instant value transfer,” Umar Farooq, head of digital treasury services and blockchain, said in a presentation about the technology on the bank’s website.
JPMorgan itself has a complicated history with cryptocurrencies as CEO Jamie Dimon once declared bitcoin a fraud. But the bank does have what it calls a Blockchain Center of Excellence.
Christine Moy, who leads that unit, said at American Banker’s Block FS conference in November that while senior leaders see blockchain as “transformative,” a measured approach to what the technology can do for specific divisions within a bank must be taken into consideration.
“We’ve realized not everything needs to be on the blockchain,” she said at the conference.
“What contributes to the slowness of progress” in adoption by financial institutions “is that we are a large organization with a reputation with clients that we have to take care of," Moy said.
Other banks face the same issues, though some have been more aggressive with blockchain-related products.
Last month, Signature Bank in New York launched a digital payment, blockchain-based platform called Signet that enables commercial clients to make payments in U.S. dollars at any time. Signature works with a company called trueDigital Holdings on the platform’s blockchain component.
Signet funds are transferred in real time between the bank’s commercial clients, eliminating any dependence on a third party, according to a bank press release. Signature’s platform has been approved for use by the New York State Department of Financial Services.
Barclays and UBS have also turned their focus to what is called a utility settlement coin, which would make it easier for global institutions to use a custom blockchain to conduct a variety of transactions.
Lex Sokolin, director of fintech strategy at Autonomous, said JPM Coin is a similar idea.
“It doesn't suggest JPM is launching a bitcoin competitor,” he said. “Instead, it means they are creating an internal cash equivalent that is both international and private. The coin is reminiscent of the UBS settlement coin, which was used internally for its namesake: settlement.”
Some observers were quick to point out the regulatory component of bank-related blockchain projects, especially for the larger banks. Multiple regulatory bodies are wary of cryptocurrencies and other forms of digital assets.
“Chase has to tread carefully. They are a significant player globally,” said Ryan Gilbert, a partner at Propel Venture Partners, the investment arm of BBVA. “If they are serious about this JPM Coin, they have to satisfy every regulator in all the countries that they are offering it that this works, because their model is that this is for global transactions, to facilitate and improve funds flow for their customers.”
Angela Angelovska-Wilson, chief legal officer for the application programming interface platform Sila, said a bank as large as JPMorgan likely already was in talks with regulators as JPM Coin became more of a reality.
“Based on my experience, I am almost certain that JPMorgan must have had to engage with their primary regulators and as part of that process was able to educate and provide insights into the benefits and drawbacks of the technology,” she said. “This engagement with regulators can only be positive for all involved and in my view bodes well for the future, including the future of crypto companies.”
Nathan DiCamillo contributed to this article.