Amid a steady stream of positive news, incumbent payment companies are quickly launching products and services incorporating blockchain technology.
To date, payments firms openly offering blockchain services include financial technology provider D+H, online payments startup Dwolla and cross-border payments specialist Earthport, though the latest to launch an offering is PayCommerce, a decade-old software-as-a-service payments and remittance platform that connects network members across the globe.
Each has so far taken a different approach to leveraging its market presence and products in a bid to win business, though all seem intent on taking advantage of their existing expertise and client networks in ways that would be difficult for blockchain startups.
Earthport, for example, now incorporates the Ripple protocol as part of its Distributed Ledger Payments Hub. Likewise, D+H has added blockchain tech to its Global PAYPlus payments hub. Dwolla, in turn, sees itself working on the outside of the DLT industry altogether, connecting digital asset movement on a blockchain to real-world cash payments.
In addition to how they’re using the technology, payments companies seem split on the types of blockchain software they’re building services on. PayCommerce and D+H, for example, are unique in that they have built their own blockchains instead of relying on the bitcoin protocol or working with industry startups.
While that could seem risky, PayCommerce chief technology officer Sha Kader told CoinDesk the company as an advantage over startups still looking for enterprise customers.
Blockchain is, after all, a network technology, and one of the biggest hurdles for blockchain startups remains signing on users and interoperating between those users, something PayCommerce, with its 80 correspondent bank members and large corporate clients, including Coca-Cola and Disney, already has.
Both PayCommerce and Earthport are working to employ the technology within the boundaries of their business models. PayCommerce, for instance, doesn’t handle customer money and so doesn’t deal with MSB regulatory burdens. In contrast, Earthport acts as a business and compliance layer built on top, a move that makes sense for Earthport as a money services business.
Moving beyond hype
In recent months, both established companies and startups have rebranded traditional databases as “bitcoin-inspired” ledgers in an effort to take advantage of the blockchain ballyhoo and the technology’s strong association with innovation.
But, not everyone believes the trend is positive.
Dave Birch, a payments expert with Consult Hyperion, recently lamented about the misuse of the term “blockchain”, a word that’s become detached from its technological definition of a shared ledger implementation.
Even payments companies seeking to leverage the technology agree with this assessment of the industry.
Karen Morgan, head of marketing at PayCommerce, told CoinDesk:
“It’s great overall that [DLT] is bubbling up to the top in terms of awareness because there’s benefit and value in the tech. But because everyone is really overusing the word it’s creating a lot of noise which makes it hard to differentiate.”
PayCommerce contends that its solution isn’t just hype.
According to Kader, PayCommerce has built a permissioned blockchain in a closed-loop model where each bank in the network gets a copy of the ledger that tracks transactions. PayCommerce itself controls access to the ledger and verifies transactions. An extensive rules-based engine allows smart contracts to move IOU tokens on the ledger.
Blockchain could be particularly helpful for transacting cross border since, in the traditional system, settlement delays can happen for a number of reasons, including a country’s inability to handle real-time settlement or more cumbersome regulatory compliance.
“In an instance where the settlement is delayed, through smart contracts we have rules that generate an IOU token,” Kader said. That IOU token is an asset on the network, similar to bitcoin the currency riding on the blockchain, he said.
While member banks can see the transactions happening on the blockchain, Kader continued, PayCommerce has the capability to limit access so only the banks that need to see certain transactions can.
PayCommerce plans on wrapping up its beta test in June with a DLT for cross-border payments launch shortly after that.
While payments companies are interested in the technology, it’s less clear what the ultimate impact their investment in the space will be.
Are payments companies providing a mature layer of business support to a fledgling technology? Or are they trying to capitalize on its potential in a bid to hedge against any future impact to their business models? It seems the verdict is still out.
James Wester, research director in the global payments practice at IDC Financial Insights, believes that the attention is a positive indicator for the technology and a sign of its maturity.
Distributed ledger technologies “have elicited so much excitement and attention, but along with that are serious use cases where the technology makes sense,” he said, adding:
“Just because it’s a bandwagon, doesn’t mean it’s not important or…it’s not serious.”
Wester contends that because DLT is so new, no one company or entrepreneur really has a first-mover advantage, and with the technology being open source, it would be hard to keep any kind of core advantage.
Although he acknowledges that many legacy institutions don’t have blockchain experts internally, so the industry could start seeing a significant number of acquisitions for talent in an attempt to compete with the offerings of startups.
Ni’coel Stark, managing principal at a stealth venture capital firm, agrees.
“To build something quickly and proficiently is something that many businesses cannot do on their own, and that’s why corporations decide to move on a tech and talent acquisition,” she told CoinDesk. “This would be particularly true with blockchain, as the number of experts in the space are few, especially when measured against blockchain’s potential for disruption.”
Still, it’s possible that the work of legacy players in DLT could end up making it harder for startups to find investors.
A substantial amount of money has so far been invested into bitcoin and blockchain startups over the past couple years, but as large enterprises build in-house or launch innovation labs, some of that investment might dry up.
After all, large corporates aren’t looking for investment rounds, they’re now effectively seeding startups in their own innovation labs.