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 $GOOGL and Uber $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 $JPM, 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.
