Wells Fargo’s Digital Cash plants seeds for bigger blockchain opportunities

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Giants like Facebook, JPMorgan Chase and Walmart are all pushing blockchain for myriad use cases, and now Wells Fargo has joined the fray with its own spin on the distributed ledger technology.

Wells Fargo will test Wells Fargo Digital Cash, initially to support real-time payment processing and settlement for cross-border uses, such as for corporate clients. That’s likely just a first step, as Wells Fargo suggested much broader use for its first internal blockchain platform.

The bank referenced the "increasing digitization" of banking services globally in announcing Digital Cash, adding distributed ledger technology has promise for a variety of use cases and could remove financial barriers. That's a reference to the friction that accompanies international payments, as well as a nod to financial inclusion that often accompanies digital currency projects.
Blockchain and digital currency are open fields for banks and other large companies, which are pursuing different angles to create a way to enroll clients and build future transaction flows. Bank of America recently filed a patent for a security system for a peer-to-peer network, an authentication-focused application that nonetheless serves as the basis for much broader digital wallet that could power a variety of financial services. JPMorgan Chase's digital coin was introduced initially for wholesale payments and treasury services in February, but also touts its ability to connect to other platforms.

Outside of banking, Walmart has filed a patent application for a digital currency that would power a "currency micromarket," or a coin that could function as an account for underbanked customers.

The choices of real-time payments and cross-border transactions as the first transaction types puts Wells Fargo squarely in the center of the current competition for distributed ledgers.

Wells Fargo will use Digital Cash to complete internal book transfers of cross-border payments within its global network. The international locations can exchange that digital cash among themselves. Wells Fargo has executed transactions between the U.S. and Canada, and the internal distributed ledger network will be a “reusable enterprise” for Wells Fargo to build and deploy multiple distributed ledger applications.

"We’ve seen a number of banks trying this out, either in partnership with companies like Ripple or looking to launch an internal cryptocurrency," said Zil Bareisis, a senior analyst at Celent.

A pilot based on USD transactions will start in 2020, and will later add support for multiple currencies and will work across Wells Fargo’s global branch network.

The desired benefit is faster payments, which are necessary for international e-commerce and digital supply chains. These require smaller-value, more frequent payments than the larger transactions that dominated traditional corporate supply chain finance.

And there are already several large projects underway to serve that market, pushing Wells Fargo to build a solution that gives it more control over enrollment and onboarding, thus giving it a better position to other banking services.

Ripple for years has used the technology that underpins its XRP tokens to provide a correspondent-free fast rail for cross-border payments, viewing itself as an alternative to the Swift network. More recently, Ripple has partnered with Western Union and MoneyGram and has worked with the bank-supported R3 distributed ledger consortium, a traditional rival. JPMorgan Chase in February announced a digital coin built off its own private blockchain, for corporate transactions and bond trades as early use cases. And Mastercard on Tuesday announced a partnership with R3 to develop blockchain-powered cross-border payments.

Wells Fargo is part of the R3 Consortium, and Wells Fargo Cash does not change that project, a Wells Fargo spokesperson said in an email Tuesday morning. Wells Fargo's Digital Cash will run on a private blockchain and will not be connected to other digital cash solutions in the market.

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