A revolution in how we pay for things is underway, as an increasing amount of commerce and money transfers occur electronically. But so far, the cryptocurrency and blockchain insurgency appears to be on the sidelines.
Take Stripe, for example: The eight-year-old startup processes payments around the world for clients including Google and Uber, and it reported this week that it’s valuation has doubled in recent years to $20 billion. In a parallel sector, TransferWise, the London-based money transfer service, handled 1.4 million payments in March, up from 800,000 a year before, while also reducing its transaction charges. Both companies are refashioning how money flows around the world, and neither uses blockchain to do it.
Blockchain and similar technologies have been touted variously as faster, safer, and/or cheaper than more traditional systems. But TransferWise says it has been better off without it. “Using the pretty tried and tested modern technologies to offer the services securely, that’s all that’s needed,” TransferWise CEO Kristo Käärmann said recently in an interview. “If anything, blockchain at this point slows it down or makes it more expensive.”
Stripe may be more optimistic about the potential for crypto and blockchain. The company dropped support for bitcoin payments because it wasn’t being used. However John Collison, Stripe’s president and co-founder, told Recode this month that he still sees potential for crypto for payments outside the likes of the US, which already has an established, well-functioning system. The San Francisco-based company also said in 2014 that it provided funding for Stellar, a digital token which could be used for cross border payments.
And then there’s JPMorgan, which announced this week that it had widened its interbank blockchain network (paywall) to more than 75 institutions around the world. However the the Interbank Information Network (IIN), as it’s called, won’t replace the underlying payment system, said JPMorgan managing director Sungmahn Seo in an interview. Those rails remain the same.
Instead, IIN will be used when there’s a problem in the complex correspondent-banking system. Banks can then look to this shared, immutable record of transactions for missing or incorrect details. The parties don’t have to rely, or trust, any one bank to keep the records. He said this information sharing was “the perfect model” for blockchain. However Seo also said he had come to a similar conclusion as others: That blockchain doesn’t necessarily make payments faster.
TransferWise’s chief technology officer Harsh Sinha says the company has sped up this process by replacing the correspondent banking network altogether—it strips out the intermediary banks—and didn’t need crypto to do it. “We’re still waiting to see an innovative use of blockchain technology that solves the bigger problems with cross border payments,” he said.
Ripple, whose investors include Google Ventures, has been among the highest-profile companies seeking to replace traditional banking systems with crypto technology. It has been adding money transfer companies and banks to its network, and says pilots have shown that cross border payments using its systems and its preferred XRP crypto coin were cheaper. There are questions, however, about banks’ willingness to use such products, and Western Union said this summer that it didn’t make payments cheaper.
Stripe’s latest valuation, meanwhile, happens to be closing in on XRP’s $21 billion total market value. Perhaps it’s worth noting that, for the moment at least, the most promising payment companies may not be crypto companies.
The future of finance on Quartz
- Here’s what Joseph Lubin, co-founder of Ethereum, OGroup CEO Maja Vujinovic, and others think about the future of money.
- Stripe climbed into the top 10 most valuable startups. Investors are betting on companies like Stripe, Adyen, and Square in expectation of a digital transaction boom.
- A data-breach epidemic is raising the profile of the cyber security sector. A British tech unicorn’s valuation jumped 30% in four months to $1.65 billion.
- Blockchain could make Africa’s commodity market more transparent. The technology’s could help save African economies millions of dollars they lose in corruption and money laundering.
- Here’s everything you need to know about India’s financial time bomb. Mumbai-based Infrastructure Leasing & Financial Services, a 30-year-old infrastructure lending giant, is at the core of the crisis.
The future of finance elsewhere
- Funding Circle’s IPO values the British peer-to-peer lending platform at £1.5 billion ($1.96 billion). The shares priced (paywall) near the bottom of the expected range.
- Bitmain Technologies has signed up to sponsor the Houston Rockets basketball team. The world’s biggest supplier of cryptocurrency mining equipment is also seeking an IPO in Hong Kong.
- Goldman Sachs launched its Marcus savings accounts in the UK, offering higher interest rates than local competitors. Marcus started in the US in 2016.
- Mozilla is pushing Venmo to make transactions private by default. It says it delivered a petition signed by 25,000 people to PayPal.
- Goldman Sachs led a funding round in Veem, which (ahem) seeks to improve wire transfers using blockchain. It says it has more than 80,000 small businesses customers in 96 countries.
Previously, in Future of Finance Friday
Sept. 21: The godfather of crypto has a plan to keep digital payments and messages private
Sept. 14: A history of the next 10 years in banking
Sept. 7: Europe’s fintech firms are on pace to set an IPO record this year