What's perhaps most surprising, and possibly even somewhat cutting edge about International Business Machines' (NYSE:IBM) recently launched Blockchain World Wire payment transfer service isn't who the provider is, nor that the solution is blockchain-based. Rather it's the open-source platform on which it's built—Stellar Lumens, the ninth most popular cryptocurrency by market cap.
Jesse Lund, head of IBM's blockchain division praises the payments and settlement network saying it cements the tech giant's leadership in the blockchain technology space. He characterizes the development of World Wire, which is now being used by six international banks including Philippines-based RCBC, South Korea's Bank Busan and Brazil's Banco Bradesco as:
“We’re building on a new idea, which is to be able to store monetary value electronically and be able to move that value around the world in real time… I think the problem with cross-border payments today, the inefficiencies are based on the fact that the way that banks communicate, the network that banks communicate on is separate from the network or the rails that money actually moves on.
Many would argue it's already possible to store monetary value electronically and move it around in real time. Banks are already virtual although the funds stored are not yet fully digital. Which means IBM may not really be doing anything groundbreaking here.
That is, unless you consider Big Blue's use of Stellar. Until now, larger rival XRP, formerly known as Ripple, had been the banking industry choice. That's because, according to its developers, "it enables secure, instant and nearly free global financial transactions of any size with no chargebacks." But, says Viabhav Kadikar, CEO of CloseCross, a decentralized market prediction platform, Steller is the preferred chain for micropayments, as it's relatively inexpensive:
“IBM has made an operational decision in choosing them [Stellar] as a network to build on. A considerable difference to the current virtual offering by banks is that the proposed flow of funds through World Wire will not require after the fact, cross border reconciliations to be carried out. This process normally involves a number of banks and even federal banks, so with World Wire they are proposing an overall increase in efficiency and transparency.”
The way IBM portrays it, they're building a new backbone for banks, using blockchain, explains Alex Frenkel, VP of product at Kin Ecosystem. He stresses that blockchain technology is slower and harder to maintain than a conventional database. Its main virtue is in the direct exchange of value between people around the world.
“I'm not sure this is the most efficient way to improve the banking backbone," he adds. "The real revolution with blockchain and crypto is removing the need to use banks for sending value across the world. In this vision, banks will have a completely different role in the financial world and will not deal with controlling and validating value exchanges between people.”
Breaking Banks Out of Their Comfort Zone
Many banks, however, are still operating within their comfort zone, Kadikar points out.
"But partnering with a tech giant like IBM will [make them] feel more confident trialing new technology.
Large banks and corporates need to be in their comfort zone when they attempt to trial or utilize new tech. They need a partner that is solid, large and reliable based on previous experiences as well as something their regulators will accept.”
To that end, the launch of IBM's World Wire is a good thing for the overall blockchain landscape, especially for the payments industry where the back-end functions can develop at scale in a blockchain environment without any user experience friction.
There is also a case to be made that transaction times and fees will drop with this latest launch. Gadi Srebnik, blockchain team lead at Kin Blockchain, which is a fork of Stellar Blockchain, believes that has serious benefits for the end consumer. "Clients will gain as work—and costs—are reduced on the banking side,” he says.
Perhaps more important than the workflow and settlement efficiencies, IBM is setting the technology standard that all banks will need to meet going forward, Jehan Chu, co-founder of Social Alpha Foundation and managing partner of Kenetic points out.
“As banks compete even harder, the near instant global settlement across their network will eventually become the new norm. IBM is signalling where the future of finance lies, and it’s built on blockchain. Banks are moving from the electronic age to the digital age, with blockchain as it’s connective tissue.”