When Wells Fargo announced Tuesday that it is building a distributed ledger for cross-border payments and a digital coin tied to the U.S. dollar, many saw it as an answer to JPM Coin, the digital currency and distributed ledger being developed by JPMorgan Chase.
But in an interview, Lisa Frazier, head of innovation at Wells Fargo, insisted that's not the case, saying the bank is instead trying to speed up the settlement of international payments for corporate customers.
“We fundamentally believe that this uniquely solves the problem of global book transfer operational efficiency,” she said. “It streamlines book transfers, reduces the use of intermediaries, which causes time lags, and widens the operating window for clearing of exchange. Depending on where you are in the world, it can be a six- to nine-hour window that you have to move money which will enable us to go 20-plus hours, five days a week. And basically it will happen in near-real time.”
Like most banks, Wells Fargo currently uses the Swift network and correspondent banking relationships to move money to other countries. A payment can take days to get from one country to another, depending on how many “hops” it needs to make between institutions. The new digital currency and distributed ledger will allow the bank to move money within Wells Fargo into international branches.
Still, there are similarities between JPMorgan and Wells' pilot projects — as well as at least one critical difference.
Wells Fargo's motivations mirror those of JPMorgan, which plans to use JPM Coin to facilitate faster payments settlements for institutional customers.
Both pilots also use stablecoins — digital currency that is pegged to the value of a currency. Wells Fargo is starting with the U.S. dollar, so every Wells Fargo digital coin will represent one dollar the bank stores in its coffers.
The main point of differentiation between the two projects is the underlying technology.
JPMorgan plans to run JPM Coin on Quorum, the in-house developed distributed ledger based on Ethereum, while Wells Fargo has built a book transfer application on R3’s Corda distributed ledger.
“We chose Corda based on the conversations we've had over quite a long time about their technology being ready for financial services' scale and security, security being the key underlying word,” Frazier said. She would not say anything more specific about Corda’s security.
Though Wells Fargo has been involved in other blockchain projects, this is its first announced use of Corda.
After the pilot launches in 2020, Frazier said, the bank will take its distributed ledger and stablecoin global, starting with added support for the Canadian dollar. Frazier was reluctant to speculate beyond that.
“The crystal ball on what the future looks like is very hard to predict,” she said. “Will there be a number of networks? Probably. What will be the interoperability of those networks? Who knows? We're active participants in discussions around consortias of banks looking at network creation for DLT.”
Attorney and cryptocurrency expert Preston Byrne sees the Wells Fargo announcement as a huge win for the R3 consortium, c
“This could be evidence of the ground shifting in enterprise tech away from the punks and towards the professionals," said Byrne, referring to open-source decentralized distributed ledger protocols like Ethereum as "punks."
But venture capitalist and consultant Brad Leimer sees Wells Fargo’s focus on corporate customers as misplaced.
“Why build a stablecoin based on the dollar at all?” he said. “Why build a closed-loop network that only benefits your corporate clients and not American consumers? This isn't the message to give to the American public right now. It's the antithesis of real innovation, the kind that impact the budget conversations happening around our country's kitchen tables. This is simply one way they are trying to retain and grow their corporate relationships due to competition from Chase and other top-20 banks."
Leimer also questioned the way both JPMorgan Chase and Wells Fargo run on internal networks that are not connected to any other digital cash solutions emerging in the financial services market today.
“Are banks simply going to head to their own corners and abandon existing rails in order to attempt to recreate the ecosystems that true technology platforms have created?” he said.
Payments and money transfers are already becoming faster and more transparent, partly as a result of the work of fintechs like TransferWise and Xoom, Leimer said.
“Why are banks so focused on trying to recreate the wheel?” he said. “It all comes down to profitability and market share. Banks of this size could make money movement to anywhere in the world real time and nearly free today — the technology is there — but banks cannot wean themselves off of the profit they've historically made from embedded friction around money movement, so they make it off market share as the fees around monetary transfer plummet. Imagine if they spent this much effort in improving the financial lives of their customers rather than their bottom line.”
