Credit card companies have no choice but to embrace blockchain technology

Rage Comment : As the impact of blockchain technology continues to expand, if you don’t adopt blockchain technology in time, you will be overturned by blockchain technology. The three major credit card companies Visa, MasterCard and UnionPay are all planning to use blockchain technology to improve their competitiveness, because this technology can significantly reduce back-end, information technology and other transaction costs, increase transaction speed and enhance competitiveness. From this point of view, other credit card companies in the industry should also take action to embrace blockchain technology.

Translation: Nicole

Visa said:

“2015 has turned blockchain into something that the industry has to have. Blockchain is no longer an option, and with recent news speculating on the identity of its creator and predicting that virtual currency will officially become a commodity, we are just making this more real than ever.”

The report summarizes the changing landscape of the global payments industry and reflects on how key players in the industry will be disrupted by new technologies, such as Bitcoin and its underlying technology, blockchain, in the future.

The solution to the challenges these companies face is to embrace blockchain technology.

According to the RBR report, in terms of payment value, the global card payment market in 2015 was dominated by UnionPay (37%), Visa (32%) and MasterCard (20%). Together, they accounted for 89% of the global $22 trillion. The report also highlighted that "UnionPay remains a primarily domestic program, with less than 1% of spending outside of China, while Visa and MasterCard maintain 50% and 31% instruction shares, respectively."

Next, let’s take a look at how market leaders can dramatically change the future of traditional business by equipping themselves with blockchain technology.

China UnionPay

China UnionPay and IBM completed a pilot project in September to offer loyalty points from multiple banks using blockchain technology. Customers are often lured by various banks to use specific cards by offering attractive programs such as bonus points. However, since these rewards or points cannot be exchanged between banks, many points go unused.

Now, IBM says, “The collaboration between IBM and China UnionPay will enable consumers around the world to choose the rewards they want by redeeming reward points from various banks in less than a minute.” This mechanism can largely bind customers to their specific cards, not only strengthening their brand loyalty to the bank, but also improving their consumer satisfaction.

Visa

Visa (V) recently announced a preview of Visa B2B Connect, launched in partnership with Chain. Visa B2B Connect is a new platform based on Chain Core (an enterprise blockchain infrastructure) that aims to provide financial institutions with a cost-effective, fast, transparent and secure way to process global B2B payments.

The program, called Visa B2B Connect, will be managed by Visa and will follow all of its standard practices. Visa intends to launch a pilot program for the project in 2017, which will enable a new near-real-time transaction system for high-value international payments between participating banks.

While the startup is very new, Visa and Chain are familiar with each other. Visa invested in Chain during its equity funding round in September 2015, when it had raised $30 million from industry leaders such as Nasdaq, Citi Ventures, Capital One, Fiserv and Orange.

This isn’t the only effort Visa has made. Earlier this year, Visa and blockchain specialist BLT Group partnered on a project to “reduce friction in domestic and cross-border interbank transfers through blockchain-based settlements via BTL’s cross-border settlement platform Interbit.” A handful of European banks were invited to connect to the network and explore how funds could be sent to each other in multiple currencies.

In 2015, Visa Europe Partners entered into another partnership with Epiphyte, a provider of distributed ledger solutions for mainstream financial markets, to explore use cases of blockchain technology, such as international remittances.

MasterCard

MasterCard (MA:MasterCard) is not much different from Visa in its blockchain-related initiatives. It provides blockchain APIs (Blockchain Core API and Smart Contract API) to developers. MasterCard said:

“By allowing businesses and financial institutions to transact on a distributed ledger, our blockchain enables new business opportunities for the digital transfer of value.”

It highlighted security, scalability and smart contracts as its core features. The company also said it wants to develop more use cases and minimize the time, cost and risk involved in the movement of funds.

This is not MasterCard’s first move into blockchain. In October 2015, Barry Silbert published a blog post announcing the official launch of Digital Currency Group (DCG), and MasterCard is one of its investors from the financing activities. DCG’s subsidiaries include Genesis, Grayscale, which manages the publicly traded Bitcoin Investment Trust (GBTC), and CoinDesk.

Garry Lyons, Chief Innovation Officer at Mastercard, told Business Insider in Davos:

“Like the rest of the world, we are interested in understanding where blockchain technology is headed, which is why we invested in DCG.”

Protecting market position

As Bitcoin becomes more widely accepted and adopted, it has the potential to challenge the entire credit and debit card industry because its transaction costs are low or even negligible compared to credit and debit cards.

Blockchain technology has the potential to significantly reduce back-office, information technology and other transaction costs, making companies such as UnionPay, Visa and MasterCard more competitive and efficient by increasing transaction speed. Overall, embracing blockchain is no longer an option as the three payment giants look forward to consolidating their position in the market in the future.