In another case of industry adoption, Mastercard has announced that after years of internal development, it has integrated a blockchain-based payment system.
Mastercard rolled out the business-facing service to certain banks and merchants in an effort to tackle cross-border payments. A number of corporations have signed up for the invitation-only platform, though Mastercard hasn't divulged which. Rather than make use of a cryptocurrency to manage payments, the blockchain developed by Mastercard will use local currencies. Justin Pinkham, senior vice president at Mastercard Labs, went on record to explain Mastercard's reasoning, saying, "We are not using a cryptocurrency, and we are not introducing a new cryptocurrency, because that introduces other challenges – regulatory, legal challenges." Pinkham explained, "If you do a payment, then what we can do is move those funds in the way that we do today in fiat currency."
A member of the Enterprise Ethereum Alliance, the large coalition of companies working together to bring Ethereum to a level of business competence, Mastercard has been active in the blockchain ecosystem. It also filed a patent application for an “Information Transaction Infrastructure” in January of 2017, which was published the following August by the US Patent and Trademark Office.
In its latest endeavor, Mastercard's use of centrally-controlled currencies on a decentralized ledger is an example of fundamental contrast. Rather than verify transactions by mining blocks, Mastercard leverages a global network composed of 22,000 banks and financial institutions. According to Pinkham, "Even in the bitcoin system you need a bitcoin exchange that could exchange bitcoin for euro, so it creates some complications." He believes that because the predominately accepted means of settling transactions is based on government-issued currencies, it would be impractical for Mastercard to utilize a cryptocurrency-based payment settlement system.
“What Mastercard brings to the table here is a unique combination of that blockchain capability and Mastercard’s settlement network,” said Pinkham.
Typical cross-border payment transactions go through a series of foreign banks, each of which takes a cut of profit. These costs are passed down to others in the process. By Pinkham's account, Mastercard could potentially stand to ride the wave of disruption and disintermediation, cutting out the middlemen who manage remittance by way of a direct connection between the banking institutions of purchasers and suppliers.
Mastercard's system still relies on banks for verification though. In essence, the blockchain registers the transaction but does not manage any transfer of value, which is left to central authorities. This systemic alteration of traditional blockchain platforms brings with it a loss of efficiency, meaning Mastercard's system won't necessarily be faster than the traditional system.
A future use case for Mastercard's blockchain system might include provenance for luxury goods in order to mitigate fraud. Services like that are a ways off from being in the hands of consumers, however. Pinkham asserted, "Quite frankly, we feel that card payments are simple, safe and easier to use – and better meet the needs of consumers – than, let’s say, a cryptocurrency payment."