JPMorgan Chase has lined up a group of partners in Singapore to greatly expand blockchain innovation's utility for trade finance.
Through a joint venture called Partior, JPMorgan is collaborating with Singapore-based DBS bank and Temasek, a state-owned investment firm that's also based in Singapore. Partior, which means "distribute and share" in Latin, will support a wholesale blockchain network for cross-border payments. Partrior envisions an extensive network of digital clearing and settlement across banks, which can then pass streamlined processing to their clients.
The venture's product digitizes deposits, which the parties say creates a way to enable instant settlement that overcomes the prevailing method of processing transactions. Normally, confirmations are required from intermediaries in a supply chain before a settlement is final. The combination of the blockchain and smart contracts automates these confirmations to remove friction and latency. The blockchain decentralizes transaction flow, and smart contracts automatically trigger payments when certain financial terms are met.
There are challenges to using smart contracts that could complicate the model, according to Tim Sloane, vice president of payments innovation at Mercator Advisory Group.
"Smart contracts sound great until one realizes they aren't implemented as contracts, they are software with all of the inherent challenges of bugs, upgrades and backwards compatibility," Slone said, adding there are also questions about legal jurisdiction regarding potential court cases tied to smart contracts.
JPMorgan Chase did not answer questions about Partior or potential ties to blockchain projects such as
"Distributed ledger technology has come a long way in a short time," said Gareth Lodge, a senior analyst at Celent, adding Partier came out of a pilot and has proved its viability. "JPM has built its Onyx business around blockchain and DLT and are forging ahead with not just experimenting but live examples. All large banks and networks are doing the same."
But there is a challenge in building a large network of banks, Lodge said.
"It would seem likely that blockchain and distributed ledgers will be widely used though quite how prominent it will be, where and when is a little difficult to say still, given the pace of change of banks," Lodge said, adding payments between banks often changes at the speed of the slowest adopter.
The Partior announcement did not mention JPMCoin, instead describing a process that digitizes currency rather than creates a digital currency. It's a model similar to Ripple, which does not use XRP to streamline cross-border payments for online marketplaces, but instead uses the underlying technology to enable payments without relying on correspondent banks or other third parties to manage currency conversions.
DBS, JPMorgan and Temasek are building on their prior work on Product Ubin, an initiative that explores the use of blockchains for multi-currency payments and settlements. The Monetary Authority of Singapore manages Ubin, suggesting JPMorgan and its partners should not face regulatory difficulties gaining clearances for Partior, which is expected to begin processing transactions shortly.
Partior will start with flows between Singapore-based banks in U.S. dollars and Singapore dollars, with plans to expand to other currencies and markets. Partior is also launching with central bank digital currencies in mind, serving as an international rail that streamlines transactions that involve multiple parties using multiple currencies.
This positions Partior to serve government clients as countries globally digitize their currencies over the next several years. Private sector financial institutions are expected to play a major and
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