JP Morgan Goes Ahead With Patent For Blockchain-Powered Payments Between Banks
JP Morgan Chase & Co. has laid bare details of a peer-to-peer payments network in a patent application filed with the U.S. Patent and Trademark Office (USPTO). The network would leverage distributed ledger technology (DLT), such as blockchain, for intra- and inter-bank settlements.
The patent application highlights the demerits of the traditional bank settlement system currently in place for cross-border payment processing: “A number of messages must be sent between the banks and clearing houses involved in processing the transaction… and clearing intermediaries in the payment flow […] [this may be] expensive […] [and] real-time settlement of payments is not possible […] transactions may be risky as there are counterparty and settlement risks associated with [the] correspondent banking network.”
The abstract for the patent states, “Systems and methods for the application of distributed ledgers for network payments as financial exchange settlement and reconciliation are disclosed. In one embodiment, a method for processing network payments using a distributed ledger may include: (1) a payment originator initiating a payment instruction to a payment beneficiary; (2) a payment originator bank posting and committing the payment instruction to a distributed ledger on a peer-to-peer network; (3) the payment beneficiary bank posting and committing the payment instruction to the distributed ledger on a peer-to-peer network; and (4) the payment originator bank validating and processing the payment through a payment originator bank internal system and debiting an originator account.”
Distributed Ledger Technology has immense potential to bring efficiency to payments, settlement and clearing processes. In days to come, all banks would adopt this disruptive technology to stay agile and meet regulatory requirements. Singapore Exchange is the latest entrant to explore distributed ledger alternative.
Image via JP Morgan Chase & Co