Circle Launched Free Cross-Border Payments on Blockchain — When Will FIs Follow?

Person-to-person payments have gained traction among banks and other financial institutions recently. Many of the incumbents, like Bank of America, Wells Fargo, or Citi, have integrated Zelle within their apps to offer free, instant, and simple P2P payments capabilities to their customers.

All this progress, however, doesn’t seem to have translated into the cross-border payments space, where money transfer can (still) take up hours, fees, and hassle.

Circle aims to change this trend with the launch of its fee-free, instant, ethereum-powered, cross-border P2P payments capability, announced today.

The new product is made possible thanks to Spark technology — an open-source project built on Ethereum, Circle’s co-founders, Jeremy Allaire and Sean Neville, said in a blog post:

Spark is built on Ethereum and can run on private and public ethereum blockchains, while being designed for compatibility with other DLT technologies and runtimes. Spark provides a smart contract container that enables wallet-to-wallet transactions within and across currencies, including native digital assets as well as digital fiat assets (digital dollars, euros and other currencies). Also within Spark are all the rules for payment settlement and reversals, and the secure exchange of KYC/AML-related information to meet compliance obligations.

The company is already partnering with “multiple consumer internet and consumer fintech companies on implementing Spark and helping take the ecosystem forward,” according to the blog post.

Cross-border payments run with DLT have long been considered the “holy grail” for the industry. Blockchain startups, such as Stellar, for example, are dedicated to reducing the cost and the time of cross-border payments (they even got Deloitte interested).

While major FIs recognize the potential benefits that distributed ledger technology can offer for cross-border, they are not quite ready to launch similar offerings.

Speaking on this topic at the Swift Business Forum yesterday, Emma Loftus, head of global payments, FX and channels at J.P. Morgan Treasury Services, said:

Because of the disconnected nature in which payments are processed, particularly with the U.S. dollar in cross-border payments, [we need] to be able to address some of the disconnect that happens, when we either send a payment instruction that’s [say] missing regulatory information. Those back and forths between the banks slows things down, and gives us the impression that we are old fashioned. These are areas that are most ripe for innovation and collaboration.

Collaboration is key, Loftus said, as banks need to ensure there is an operating “ecosystem” behind the technology, before building new products on top.

The same sentiment was shared by Amber Baldet, blockchain program lead at JPMorgan Chase, during Blockchains + Digital Currencies conference earlier this week.

“We need to be cautious about building systems of tomorrow, with today’s limitations.” Those limitations include privacy and regulatory concerns, as well as transaction limitations, according to Baldet. “The technology is moving fast, and we want to make sure that [what we build today] will stand the next generation’s test of time,” she added.

But in the meanwhile, fintechs are “chipping off” larger and larger portions of the already thin-margin payments business from the banks, Loftus said, prompting them to accelerate innovation efforts.

If you ask Circle, those “margins” are now non-existent:

We don’t believe there is a revenue model for domestic or cross border consumer payments, and we are not trying to generate any revenue from those payments. Just as the internet entirely commoditized information sharing, data sharing and communications, we are on the cusp of that commoditization happening in consumer payments.

Circle makes its money trading cryptocurrency, whose values are at record highs, according to the The New York Times. Circle is now a payments company that doesn’t make money from payments.