There are currently two ways in which people can make payments online.
One of them involves making a payment through traditional channels – banks – on the internet, using the financial institutions’ own platforms or apps or debit/credit cards. These transactions may take a while to be completed – anywhere between 24 and 72 hours, perhaps more, depending on where the payer and the payee are.
The other method, internet-based payment services or eWallets, is instant – the money sent is received within seconds by the payee, no matter if the payer is a mobile casino Canada or a private person in Spain or Turkey. This speed comes at a price, though – literally. To be able to spend the money in real life, users of these online-only payment methods have to pay fees that are often pretty high compared to those perceived by banks, perhaps exchange currency at rates that are far less advantageous. And getting the money from an online wallet into one’s bank account can often take days.
Thanks to blockchain, the distributed ledger introduced together with Bitcoin, banking now has the chance to be reformed, combining the speed of an online wallet with the cost-effectiveness and security of banking.
“Stablecoin” is the name used for a cryptocurrency with the value of a token tied to a commodity (like Venezuela’s failed oil-backed token, the Petro) or fiat currency. Unlike cryptocurrency, stablecoins are far less volatile. As such, they are a good choice to be used for international money transfers, for example – at least this is what some major American banks plan to use them for.
Speed and Security
JPMCoin and Wells Fargo Digital Cash are two examples of the blockchain serving as an upgrade for traditional banking.
JPMCoin, created by American bank JP Morgan Chase, is not a cryptocurrency in itself – it is a digital currency representing US dollars. Its raison d’etre is not its value but its speed: transactions over the blockchain using JPMCoin can be completed almost instantly.
This will allow the bank’s customers to transfer funds at any time of the day, any day of the week, at the same speed, to pretty much every corner of the globe. And it will save money for the clients and the bank, too, considering that its use is way cheaper than that of third-party operators like SWIFT.
Wells Fargo Digital Cash is a similar token that will be used for internal settlements among the bank’s international locations. The bank’s DLT (Digital Ledger Technology) platform will allow near-real-time movement of funds between the bank’s international locations, without the time and money cost of using intermediaries.
Of course, these are both in the testing phases as we speak. But if they prove their worth – or better said, when they do – they will speed up banking around the globe significantly. Thus, we’ll have the possibility to transfer money across the globe at the speed of a digital wallet while keeping our money as safe as only a bank can do.