Chase Payment Patent Sparks Curiosity About Bank's Next Move

JPMorgan Chase's recently published patent application for a free online payment system offers some hints about the bank's future payment plans.

Chase, a founding member of the clearXchange P2P payment network and the second-largest U.S. card issuer by loan volume and cards issued, submitted the patent application in August. The application is a renewal of claims filed in 1999, and covers a system for making free online payments without revealing the users' names or account numbers.

An agreement with Visa Inc. earlier this year shifted some power to Chase in its efforts to expand electronic payments and provide more services to merchants and consumers. The new application may be a result of that agreement, which gave Chase more leeway to create new products and services, says Brian Riley, senior research director and analyst with Boston-based CEB TowerGroup.

The system has generated some comparisons to the Bitcoin virtual currency because it covers "an anonymous [electronic] payment." Much of Bitcoin's popularity stems from its near-anonymous nature.

"I think the analogy to Bitcoin is a little aggressive," Riley says. "The only overlap is that it is a digital trading currency, but Bitcoin is not the benchmark that payments systems should be held against."

JPMorgan Chase did not respond to inquiries prior to deadline. An article published by Bloomberg News cites an anonymous source "familiar with the matter" who rebuts the speculation that Chase is planning to develop a digital currency.

In the patent application, Chase acknowledges its desire for this system stems from the need to counter emerging technologies that want to challenge the credit card industry.

The Financial Times in the U.K. reports that Chase originally submitted a similar patent in 1999 and that the company first brought up the "anonymous payments" facet in 2003. The Times also cited the Chase patent as an indication that virtual currencies such as Bitcoin are vulnerable to competition from new players in the space.

As such, Chase's patent illustrates how important the development of digital or virtual currencies is becoming, Riley says. "Digital currency through someone like Chase feels a lot better than going into a black box, which Bitcoin is kind of like," he adds.

Whereas Bitcoin's anonymous nature has found it an audience for drug sales and funding anonymous speech, JPMorgan Chase's interest in anonymity is likely more about the end users' comfort level than about covering the payer's tracks, Riley says.

"They are not going to create something for you to hide your money," Riley says. "This is more about transactions online and holding your identity from people who shouldn't have it."

Chase does not mention Bitcoin or any other form of digital commerce in its patent.

Chase's patent calls for a system with a payment portal processor, a digital wallet, an Internet Pay Anyone account, a virtual private lockbox, an account reporter, the existing EFT networks and a cash card.

The system would include the ability for the payer to include a bill-payment message, and transmission of a transaction ID that would allow the payer to initiate transmission of a payment amount, according to the patent.

Chase sees a market opportunity in the continued development of wireless, two-way cables, cell phones and interactive television technology, the bank states in its patent application.

As such, the timing is right for the creation of "Web cash" to facilitate low-value payments, person-to-person payments and payments to merchants through electronic funds transfer, the bank says in the application.