[Insight] JPMorgan and Digital Currency Finance

JPMorgan Chase (JPMorgan), an international financial center representing Wall Street, has launched a business unit exclusive for blockchain and digital currency projects for the first time among the financial firms in the United States. This business unit is so-called Onyx. The unit consists of more than 100 dedicated staffers from the starting level.

Onyx Foreseen by JPM Coin

About the launching Onyx, Jamie Dimon, Chairman and CEO of JPMorgan Chase, said, “Onyx illustrates our commitment to blockchain and other ground breaking technologies to strengthen and expand JPMorgan’s Wholesale Payments platform, and we are at the forefront of reimagining and re-architecting better ways to exchange information and value.”

In fact, only two years ago, Chairman Dimon had accusingly declared, “Bitcoin is a fraud, and we don’t care,” But Last year, he completely changed his word, regretting his remark. In February last year, JPMorgan announced that they had developed their own token “JPM Coin.” Considering the situations, the launch of Onyx proves that JPMorgan has successfully found a business model using JPM Coin through a period of one and a half years.

As widely known, JPM Coin is a stablecoin with a fixed value of 1:1 ratio compared to the US dollars. Since the issuance of a JPM Coin requires an actual one dollar for JPMorgan, the total issue amount of JPM Coins are limited to the total value of legal currency deposited in the bank. For JPM Coin’s value is not fluctuating, the coin does have merits when used for various transactions. Furthermore, the usage of the issued coins will be limited as a means for trading and paying in a distributed ledger of a private blockchain, exclusively allowed to institutional investors who have gone through thorough KYC regulations, etc. The fact that institutional investors can easily convert JPM Coins into cash at JPMorgan at any time could be another merit.

The Brand-New World for Inter-institutional Payment Services

With the brand new JPM coin system, the first commercial service that JPMorgan is about to launch is an inter-institutional payment service. An enormous amount of funds are moving across the borders through transactions, such as one bank in a country remitting customers’ funds to another bank in another country, or a trading company that imports products paying for the purchase to another foreign company. Even for JPMorgan, they are transacting with astronomical amounts of funds worth USD 6 trillion (approx. KRW 6,790 trillion) daily through customers in more than 100 countries around the world.

“ We are launching Onyx because we believe we are shifting to a period of commercialization of those technologies, moving from research and development to something that can become a real business,” said Takis Georgakopoulos, Global Head of Inter-institutional Payments, JPMorgan. “First of all, we are planning to use them for inter-institutional payments, such as 24-hour global payments. We are expecting this will increase our efficiency, saving the costs worth hundreds of millions of dollars.”

Traditionally for international money transfer, the most common way was using Society for Worldwide Interbank Financial Telecommunication (SWIFT), an interbank communication platform. In this case, it took 2–3 days for actual fund transfer between banks, and commission fees were quite high. However, by using JPM Coins for transferring tokens on a blockchain network, it is possible to conclude transactions merely within some minutes with substantially reduced commission fees.

Expansion towards Financial Transactions and Financial Services are Expected

The next step will be replacing paper checks that are widely used in the U.S. and other countries. Umar Farooq, who had been directing the blockchain business in JPMorgan and became the CEO of Onyx, said that he will focus on changing all paper checks to digital versions. If the papers and the producing procedure for checks are gone, it will lead to a reduction in costs. So far, banks used to charge a few cents of commission fees for confirming the checks issued by companies and individuals. But If the checks can be transformed into digital versions, these costs will also disappear. Farooq predicts that this will save 75% of the current costs required for sending and processing payments through paper checks.

On this basis, it is expected that JPMorgan will expand the usage fields of JPM Coin dramatically. It seems it will be possible to make payments with JPM Coin in many transactions with JPMorgan, such as stocks, bonds, foreign exchange, and various derivative products. In earlier days, JPMorgan had already tested transactions like security issuance, distribution, and payment through Quorum blockchain platform, with help from the National Bank of Canada, etc. And Last year, they have successfully tested the issuance of the debt worth USD 150 million.

Furthermore, the provision of financial services using JPM Coin for multinational companies is also expected. It seems that the foreign currencies held by transnational companies with subsidiaries in various countries around the world, such as Facebook or Honeywell International Inc. (HON), can be integrated into JPM Coin, increasing their operating returns on their holding assets.

The reasons for Facebook’s ‘Libra’ got so much attention were that it had a powerful networking effect thanks to the participation from many of its partners, such as payment service companies and IT firms, and the tokens can be used for real in huge amount. According to this aspect, the matter of concern will be, how many institutions will participate in JPMorgan’s JPM Coins and its blockchain.

Earlier in last year, when the development of JPM Coin was announced, many of the experts were showing negative opinions, saying, “Will other financial institutions participate in the blockchain network established by JPMorgan?” But, according to the recent announcement made by JPMorgan, more than 400 financial institutions are determined to become participants of Liink, JPMorgan’s blockchain-based Interbank Information Network. This news itself seems quite encouraging. It could be said that the era of stablecoins led by JPMorgan is just around the corner.

*This research and analysis document has been prepared for the purpose of providing information that can be used as a reference based on our reliable data and information, but we cannot guarantee its accuracy or completeness.

*The document has reflected the individual’s opinion and it may not be consistent with the company’s official point of view.