US banking giant JPMorgan Chase has partnered with Siemens to develop a blockchain system for the German industrial group’s payments, in what the two companies said was a first-of-its-kind application.
It highlights the applications that banks are trying to find for blockchain — digital ledger technology that records and verifies transactions and underpins cryptocurrencies such as bitcoin, to further automate areas like payments.
Siemens said the improved automation is needed to process the far greater number of payments it expects due to the growing popularity of payment models like pay per use.
“If the business would stay the same as it is today, I would say we are fine regarding our treasury set-up. We can automate a bit and maybe we reduce costs and cash allocation,” Heiko Nix, head of cash management and payments at Siemens, told the Financial Times.
“This is not the reason why we are doing this. The reason is that we are seeing a huge change due to the emerging digital business models, because we will no longer be able to forecast cash, for example.”
The system is being used to transfer money automatically between Siemens’ own accounts. It is currently only used for US dollars, but there are plans to allow euro transfers next year. The companies declined to comment on the volume of payments the new system had processed to date.
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The infrastructure, developed with Siemens by JPMorgan’s blockchain unit, Onyx, takes programmable payments beyond current uses like direct debits and standing orders, said Naveen Mallela, global head of coin systems at Onyx.
“You want more flexible rules or flexible triggers, that is where the current infrastructure falls short,” Mallela said.
Mallela said JPMorgan had a pipeline of clients that it would like to offer the new system, but that Siemens is its first anchor client.
In a further sign of banks’ efforts to incorporate blockchain technology into their operations, HSBC and Wells Fargo said last week they had agreed to settle currency trades directly on blockchain.