JPMorgan Chase, Mastercard sell crypto-style B2B payment tech

Chris Ratcliffe/Bloomberg

The myriad initiatives to speed processing for corporate payments mostly have at least one major problem — they don't work well together across borders, if at all.

JPMorgan Chase and Mastercard are betting that a combination of scale, international networks and elements of cryptocurrency technology will smooth out some of these differences. The financial services giants can also place themselves in a prime competitive position against other banks and fintechs as speedy trade finance becomes a major competitive lure for B2B clients.

Mastercard has connected its multi-token network to JPMorgan's Kinexys Digital Payments, a payment rail that powers real-time transfers through Kinexys, the bank's blockchain business unit. It's similar to the decentralized processing model that supports bitcoin and other cryptocurrencies but can also be used to streamline transactions with parties in different countries using different currencies.

These international transactions are often fragmented due to a long-standing mix of correspondent banks and currency transfer services. While new processing networks such as the fast-expanding FedNow and RTP in the U.S. and similar projects in other countries are enabling real-time payment processing at all times, most of these networks lack interoperability and are focused on attracting users to make domestic payments in the short term.

"Cross-border payments have long suffered from a lack of transparency, due to the involvement of multiple banks that don't use the same data standards," said Aaron McPherson, principal at AFM Consulting.

A new message

JPMorgan and Mastercard's B2B collaboration is one of several payment projects to address these challenges. The international messaging standards organization Swift and blockchain technology company Ripple are among those working on ways to speed cross-border payments by simplifying currency exchange and standardizing the information and other data that accompanies payments.

Swift is testing an interlink for central bank digital currencies and traditional currencies to improve supply chain finance and reduce friction resulting from currency conversion. Central banks in Australia, France, Germany and Singapore are part of the Swift project, as are HSBC, Deutsche Bank, Standard Chartered and others.

Faster payments

FedNow saw $17.5 billion of transactions last quarter

November 22, 2024 11:34 AM

"The appeal of blockchain-based systems like MTN and Kinexys is that they provide real-time visibility into the status of a transaction," McPherson said, adding interoperability is also a key focus of Swift's work. "Bilateral agreements such as this one are a precursor to multilateral arrangements such as Swift is piloting," he said, adding these agreements are more attractive to prospective corporate clients.

Ripple and other firms such as Flywire and dLocal are reducing cross-border friction by acting as domiciled merchants of record, offering faster settlements and simplified tax compliance for businesses, according to Richard Crone, a payments consultant.

Swift did not respond to a comment. Mastercard and JPMorgan did not answer questions about potential Swift connections.

"At Kinexys, we believe our solutions can play a transformative role in the ecosystem for digital global commerce and digital assets, where the value proposition of commercial transaction venues is enhanced by the availability of commercial bank payment rails that can natively integrate with any digital marketplace or platform," said Naveen Mallela, co-head of Kinexys, in a release.

Mastercard's MTN combines blockchain-based tools and standards into one platform. By integrating the card network and bank's tools, mutual clients can settle B2B payments through a single application programming interface. JPMorgan recently added blockchain technology that supports the bank's JPM Coin digital currency system to make B2B payments "programmable," or designed to automatically execute when certain conditions are met.

Lots of payments

The stakes in the B2B cross-border payments market are massive. The market is estimated to have a total value of $68 trillion in 2024, grouping at a rate to reach $121 trillion by 2033, according to Custom Market Insight.

"The challenge is how to reduce the time not just from sending to receiving funds, but the speed to 'how can I apply those funds?'" said Jessica Pinkston, a senior director at Cornerstone Advisors. "And how can I do that in a digital-first intuitive manner in fewer steps and make the technology accessible across multiple business types and sizes?"

The advantages that JPMorgan and Mastercard have in this market is their size and JPMorgan's influence on payments technology adoption at other banks.

"JPMorgan has a reputation for driving payment trends in the U.S.," Pinkston said. "If JPMorgan starts doing something, then other financial institutions will take note and that will lead to expectations for other institutions, even among community banks."

Most legacy international B2B payment systems rely heavily on older Swift protocols and existing proprietary, closed connections at international banks, according to Crone, noting these older connections are private links between financial institutions, and not B2B clients or trading partners.

"Integration into local clearing and settlement networks will be critical for overcoming regulatory and infrastructure barriers, ensuring compliance and seamless fund transfers across geographies and among all trading partners, not just banks," Crone said. "That is the advantage of partnering with Mastercard."