The technology, which relies on blockchain, is grabbing headlines, and the acronym DLT is catching on. But will its mark be permanent?
DLT could reshape how we store and transmit both money and information. Today when money moves, each party involved marks the transaction in its ledger. Record-keeping and reconciliation are duplicative processes that repeat across the separate financial accounts of remitters, banks, central banks, clearing systems and beneficiaries. The inefficiency is exaggerated and most acute for global payments, since time zone differences, cut-off times and other complexities can add days of delay.
What if payments could be made nearly instantly on a single, tamper-proof ledger shared among participants? These transactions would be immutable, incorruptible and irreversible.
Directly connecting counterparties via a shared ledger would enable a global peer-to-peer (P2P) wholesale payments system. Payments could happen nearly instantly from and to anywhere in any currency. An immediately visible payment trail could simplify track and trace.
Beyond transaction details, enriched data could be immutably linked to a transaction to allow easier, more accurate auditing of supporting documentation for a payment.
Companies could gain anytime, anywhere, near-instant global access to their funds and related information. Cash could be in continual motion to meet a company’s working capital and liquidity needs worldwide. This is increasingly important as liquidity markets demand more efficient cash management.
In the future it’s possible that one shared ledger could connect all central banks, financial institutions and companies for unprecedented interoperability.
DLT is nascent and rapidly evolving. Blockchain and DLT are not a panacea for all global payment woes, and many areas must be resolved, including:
DLT won't connect simply and directly into existing banking platforms and systems. A bank's most valuable commodity is its ledger. Distributing a ledger via emerging technology is a serious, long-term endeavor.
Rules must be developed for a P2P global payments system based on DLT. For example, what will be the recourse for money sent in error?
As the financial industry modifies the technology to work within permissioned networks, security implications must be thoroughly explored and addressed.
Banks have long sought the ultimate efficiency of full interoperability for global payments as a means for companies to fully mobilize their cash flows. DLT could be the catalyst to enable this leap.
A new level of connectivity would enable banks to deliver solutions for managing and optimizing cash and liquidity in a seamless way through the convergence of technologies. With a distributed ledger as the foundation, banks could use APIs and the cloud to efficiently connect to clients and distribute data.
Blockchain and DLT could revolutionize the speed and efficiency of global payments. The accelerated pace of innovation makes it imperative that corporate treasuries build flexibility into new technology investments to be prepared for new ways to transact.
J.P. Morgan is investing in blockchain and other technologies and multiple use cases for DLT are in progress for payments as well as other initiatives.
Significant technology investment:
DLT developments could enable significant leaps in how you manage your global payments. MAKE SURE TO:
To learn more about how J.P. Morgan Treasury Services can help you protect, manage and grow your business globally, please contact your representative or visit us at jpmorgan.com/treasuryservices.
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