JP Morgan is working with the Royal Bank of Canada (RBC) as well as Australia and New Zealand Banking Group Limited (ANZ) to develop and test a new use case for blockchain technology. The Interbank Information Network (IIN) will increase the speed and security of payments. To better understand the ramifications of the IIN and how it works with JP Morgan’s permissioned version of Ethereum, Quorum, ETHNews spoke with Umar Farooq, head of channels, analytics, and innovation for treasury services and blockchain initiatives at JP Morgan.
“Quorum is our platform for developing blockchain applications,” said Farooq. “It’s built by using the Ethereum code base. We very explicitly chose Ethereum because of how big the community is and the depth of knowledge in that community, with regard to programming. Quorum has existed for a while now. It’s been open-source for a while and we continue to add more functionality to that core platform ... We wanted to start relatively limited and with partners with which we have lots of transaction volumes going back and forth,” Farooq said, referring to JP Morgan’s partnerships with RBC and ANZ, “so we can test the network appropriately.”
“Our blockchain strategy is very focused on making sure that we don’t have a technology looking for a problem. We start with the problem and then find the appropriate technology. In some cases, like this one, blockchain is actually an ideal technology, given the construct, the cryptography, and the smart contracts that you can build into it. In many other cases, maybe the solution is still a centralized database. We start at a client-centric point of view, going to a problem we are trying to solve, and finding the appropriate technology. In cases like this, blockchain pops up as the right one.”
The processing of global payments can, at times, be an extremely arduous task with layer upon layer of complexity. The communication between parties transacting together sometimes requires unnecessarily high levels of bureaucratic verification, especially when the transaction is crossing international borders that have various legal stipulations. “The real pain point that happens for a client is when one of these payments gets flagged for information,” Farooq told ETHNews. “It could be because of some screen that we have or rule that we have, or one of the many lists that we have to check names against to make sure that we’re not [facilitating transactions] for someone who’s sanctioned by any of the different legal regimes that we operate under.”
The IIN is not a network for value to be exchanged, per se. Rather, it is an information network that enables similar assurances to the know your customer (KYC) requirements that banks must follow. “The value is still moving on the standard rails ... This is just attacking the information part,” said Farooq. “It can be compared to [KYC] but the reason I wouldn’t call it [KYC] is because [KYC] is a significant term [already] and involves a lot of information that we collect on a customer up front when we onboard them. It is definitely in the same realm. We are confirming ... that the person is the right person and they are not flagged or involved in fraud or sanctions or any of those things. All it does is actually make the current system more efficient in terms of information sharing. So it’s an information network, not a value network, so to speak.”
JP Morgan is ideally suited to develop this kind of a blockchain-based technology, transacting “somewhere around four or five trillion [USD] a night in total clearing volume.” Many times, as payments are going from the payer to payee, there are multiple banks in any given transaction pipeline. Should any of those banks have a “red flag” issue with a transacting entity’s information, associated delays can be time-consuming and costly. Farooq said, “If that happens, we basically have to get ... all of that entity’ information in addition to what we [already] have ... Right now, that process across banks is quite inefficient. You have multiple banks involved in the network. They are going back and forth. A lot of this work is via emails and faxes and phones. You may end up going back and forth across multiple banks to get literally one piece of information, like a date of birth ... Blockchain is actually quite an ideal way to tackle this problem. It obviously allows you to connect in a fully distributed way and uses encryption, so data can be protected.”
With the IIN, JP Morgan is bringing disparate transactions together and putting them on a distributed network. Should a payment get flagged by any bank along the pipeline, that bank doesn’t have to go through the entire pipeline to get the information it needs. Rather, they can send encrypted messages via the IIN to get the information directly. “Instead of multiple hops, you can reduce it to one hop,” said Farooq. “You can reduce it in a way [that] it’s fully encrypted so data is safe. In our implementation of Quorum, we only store hashes on the blockchain itself. We don’t actually store the core data, which means that you’re not actually storing data that’s confidential and in some cases sensitive. Only the parties involved in the transaction know the data ... It’s the same thing we do today in terms of data privacy but it makes the process significantly more efficient. Instead of taking what could be several days ... we can reduce this to a matter of minutes or hours.”
The IIN is a distributed application built on the Quorum blockchain. “It’s actually using our existing Quorum constructs as well as our existing smart contract constructs to build this particular application. At this point, we haven’t done anything beyond the technical capabilities of Quorum. As we go from our current state to a fully rolled out state in a few months, we are testing it with two of our large peers, [RBC] as well as ANZ. As we test it amongst the three of us and then decide how to scale it, it’s very possible that we will end up extending certain parts of our platform, which we would then go back and contribute to the open-source community if appropriate.”
Farooq concluded by saying, “I’ve been involved in blockchain for a very long [time], almost the entirety of our program. The really gratifying part is that we’ve now made the transition from literally just being involved in [proofs-of-concept] and initial pilots ... Now we are approaching it from the point of view of our clients ... Now we are looking at actual products we will build using the technology.”
ETHNews will be following JP Morgan’s development of the IIN and how the new blockchain technology is reshaping the global payments landscape.