Visa, Mastercard seek out blockchain's role in cross-border payments
The card networks are taking blockchain seriously as a means of streamlining cross-border B2B payments. But while they share a vision, they are taking different paths to this goal. Visa has opted for a closed network that it controls, while Mastercard envisages a wider, more open ecosystem.
Mastercard is developing a blockchain-based platform to connect faster payment systems in partnership with bank-backed R3, whose Corda software is used by multiple industry verticals including banking, healthcare, telecoms and trade finance.
Visa now has 62 international trade corridors on its Visa B2B Connect platform, which it launched in June, and expects to expand to 100 countries in 2020. While it encompasses elements of distributed ledger technology, Visa B2B Connect isn’t a blockchain network.
Mastercard and Visa’s vision is that, by using their platforms for real-time financial message-sharing, clearing and settlement, banks can speed up transaction processing for corporate clients compared to traditional correspondent banking networks.
Visa B2B Connect uses a closed and permissioned distributed ledger on Linux Foundation and IBM’s Hyperledger Fabric to shorten cross-border transfers from several weeks to one or two days. To avoid risk, it operates on a pre-funded model, and KYC/AML data on all corporate users of the network is stored in a central registry.
Instead of banks needing multiple correspondent banking relationships, they can establish a single relationship with Visa B2B Connect and transfer funds directly to recipient banks in the 23 currencies in which Visa settles. Alan Koenigsberg, senior vice president and global head of new payment flows at Visa Business Solutions, said Visa B2B Connect offers transparency on fees and certainty over settlement times.
“We want banks to know that our technology scales and is safe,” he said. “We’re not going to take unproven technology and send it out into the wild.”
IT firm Infosys has integrated with Visa B2B Connect to provide its financial institution customers with access to the network. Infosys joins other tech vendors which are already participating in Visa B2B Connect, including FIS, Bottomline and IBM.
“Banks can shorten their implementation spending and timeframe for B2B Connect by using our tech partners,” said Koenigsberg. “Our goal is to widen access to cross-border B2B payment services from tier 1 banks to tier 2 and tier 3 FIs.”
Mastercard and R3’s cross-border payments system will connect faster payments schemes and banks and will be supported by a Mastercard-operated clearing and settlement network.
“Mastercard’s commitment to using the blockchain for cross-border payments indicates that it believes the blockchain is getting ready for prime-time and that it will be able to make significant inroads with the technology,” said Charley Cooper, R3’s managing director.
R3 will give Mastercard access to its Corda ecosystem of over 300 financial services firms, tech vendors, central banks, regulators and trade associations. Also Mastercard, along with Bank of America, has joined the Marco Polo B2B trade finance network, a Corda-based project run by R3 and TradeIX and serving 25 banks. Mastercard will use its global B2B trade platform Mastercard Track to enable businesses to access the Marco Polo network’s risk mitigation services such as receivables discounting and payables finance programs.
For its cross-border blockchain initiative, "Mastercard and R3 will deliver a payment-agnostic network with a single access point for banks to connect clients for international payments,” Peter Klein, Mastercard executive vice president for, new payment platforms, said in an email.
Mastercard will draw on its in-house assets such as Transfast, the remittance firm it bought in July, Mastercard Send, and Mastercard Track for its collaboration with R3.
Interoperability is part of Mastercard’s long-term vision.
“Mastercard recognizes that, as companies are deploying various blockchain platforms, providing options is critical for building scale,” Klein said. “So, in the future, blockchain networks will have to be interoperable, and, for that reason, we wouldn’t want to exclude anyone from our list of potential partners.”
R3's original Corda platform operates as an open-source blockchain, while Corda Enterprise is a commercial version for enterprise use in verticals such as banking, shipping, and insurance.
“R3 developed Corda Enterprise to meet the demands of highly regulated environments, which has been a challenge to the adoption of blockchain in many areas,” said Erika Baumann, Aite Group senior wholesale banking analyst.
Wells Fargo, one of R3’s investors, recently said it would use Corda Enterprise to develop Wells Fargo Digital Cash, a proprietary U.S. dollar-linked stablecoin. Wells Fargo will conduct an internal trial in 2020 using the stablecoin to settle internal cross-border payments across its global network. Wells Fargo Digital Cash will eventually expand to multicurrency transfers across the entire global Wells Fargo branch network.
“R3 Corda Enterprise is a distributed ledger solution that allows for appropriate data confidentiality controls, scales to bank transaction volumes and throughput, and supports an information security design compatible with Wells Fargo's industry-regulated standards,” said Wells Fargo spokesman Roger Cabrera.
The scale of what Wells Fargo plans to do across its entire network is a vote of confidence that the blockchain is capable of handling cross-border transactions, said Cooper.
Unlike Ripple, R3 doesn’t see itself as a rival to Swift. In January 2019, Swift launched a blockchain proof-of-concept for its GPI cross-border payments service using Corda Settler, an open source app that lets users settle transactions using any payment method. “We view ourselves as an enabler, helping our partners to do what they do better, unlike blockchain maximalists who want to blow up the international banking system,” Cooper said. “We don’t want to eliminate Swift.”
R3 has addressed the need for interoperability between blockchain platforms in several ways. “Its Corda Network is designed to achieve interoperability between different private initiatives in various industries using Corda and Corda Enterprise,” said Fabio Chesini, Gartner senior research director. “Corda Settler aims to achieve interoperability with traditional and blockchain-based payment networks and cryptocurrencies such as Ripple’s XRP. Thirdly, R3’s deal with Mastercard fits into its goal of interoperability.”