JPMorgan Chase has launched a blockchain pilot project: the bank has transformed into a "tech company"

Goldman Sachs, a long-established international investment bank, has long regarded itself as a "high-tech company". Coincidentally, Jamie Dimon, chairman of JPMorgan Chase, who is known as the "best banker", also describes his company as a technology company. In this "technology +" era, financial technology (Fintech) is infiltrating traditional financial institutions, and all sectors have to prepare for this disruptive force in advance.

Recently, Abhijit Gupta, head of banking technology for Asia Pacific at JPMorgan Chase's corporate and investment banking department, accepted an exclusive interview with Yicai Global. He revealed that JPMorgan Chase has combined blockchain with actual business, focusing on improving the efficiency of cross-border transfers. "We are trialing a 'network payment' project for internal book transfers. In the past year and a half, our system's processing time has increased 10 times, but in fact we need to achieve 1,000 times."

In addition to blockchain, the meaning of financial technology is actually broader. JPMorgan Chase has invested heavily in the field of technology - "In 2015, we invested $9 billion in technology; the company currently has a technology team of 40,000 people around the world." Abhijit Gupta told reporters.

JPMorgan Chase launches blockchain pilot project

In fact, the blockchain, which sounds mysterious, is not a new concept. "In fact, it is just a combination of 4-5 mature technologies, such as cryptography, distributed database technology, etc. But they are indeed coming together for the first time and will have a disruptive innovation in the industry," said Abhijit Gupta.

As the underlying technology of Bitcoin, blockchain may be used in many fields. Its core is decentralized distributed accounting, a technical solution for collectively maintaining a reliable database, which is essentially a way of accounting for all people. In the financial field, centralized settlement is the basis of various transactions. Faced with the reality that the speed of funds (measured in days) is far less than the speed of information transmission (measured in milliseconds), European and American banking giants hope to achieve real-time settlement and clearing on a global scale through blockchain technology.

It is reported that until the end of this year, JPMorgan Chase's blockchain trial project will be carried out in parallel with the existing cross-border transfer system, and the bank has completed relevant tests.

Some analysts explained that, for example, an international company may have accounts in London and Japan. If it wants to make cross-border fund payments from the UK to Japan, it may be restricted by time zones. Afternoon in the UK may be night in Japan, and the transfer system cannot operate in real time. But once blockchain is used, this problem does not exist.

However, it will take some time to achieve real-time cross-border transfers in an ideal scenario. Abhijit Gupta said that the current system is still being improved. "Real-time settlement cannot be achieved yet. We are currently focusing on improving the performance of the technology, especially the speed. In the past year and a half, the processing time of our system has increased by 10 times, but in fact we need to achieve 1,000 times."

He believes that there is no need to worry about security issues at present, and blockchain is more stable. However, JPMorgan Chase's pilot project is still limited to the bank's internal private blockchain system. In contrast, the public blockchain is open to everyone and anyone can participate; while the private blockchain is only open to a single individual or entity.

International investment banks actively deploy blockchain

At present, banks are learning from blockchain technology and building private chain systems within a certain range. On the one hand, they want to meet compliance and regulatory requirements, and on the other hand, they want to create a unified ledger and settlement system to reduce transaction costs and improve operational efficiency. The blockchain alliance led by the startup R3CEV, which has more than 40 large banks around the world, including Goldman Sachs, Citi, Deutsche Bank, HSBC, and JPMorgan Chase, is a representative example.

This company, which was founded in 2015, is creating blockchain codes and protocols for major European and American banks. By establishing an open source, universal "shared ledger", it will significantly reduce banks' coordination costs and form a global, decentralized, real-time settlement and clearing system.

The current cross-border settlement is carried out through SWIFT, a system established in 1973 that is currently used by most banks in most countries around the world. It aims to solve the problem that financial communications among countries cannot adapt to the rapid growth of international payment and settlement.

Lian Ping, chief economist of Bank of Communications, recently stated that "the new financial formats formed by the innovation of blockchain technology may bring challenges to several major functions of the banking industry: first, the payment function; second, the credit intermediary function; third, the credit creation function and the overall financial service function."

If we push forward on the basis of the first two, it will even eventually affect the credit creation function of banks. "After banks absorb deposits, they use a system including payment and credit intermediation to finally issue loans and then form deposits. This cycle has a multiplier effect, and the credit creation function is thus reflected. If blockchain technology is used, it is peer-to-peer and distributed, and its form looks like a loan relationship, but its essence is direct finance, and it will not continuously create new credit scale like banks. This is also a challenge for banks."

However, Zhao Min, senior strategic analyst at Huifu Tianxia, ​​previously stated that banks need to share accounts and trust each other, which is precisely the core interest of banks, so whether R3CEV can succeed remains to be seen.

Financial institution or technology company?

The overall disruptive power of financial technology cannot be ignored. At present, traditional investment banks are increasingly moving towards "technology companies".

Previously, Jamie Dimon described JPMorgan Chase as a technology company, "which means that as we rely more and more on technology to provide solutions to our clients, our technology team is as important to the business as our bankers." Abhijit Gupta told reporters that JPMorgan Chase has invested heavily in technology - in 2015, JPMorgan Chase invested nearly US$9 billion in technology, and the company currently has a technology team of 40,000 people worldwide.

Coincidentally, Goldman Sachs also seized the trend of technological innovation, increased its investment in the technology field, recruited a large number of computer engineers, and invested in external technology companies.

For example, a financial data service provider called Kensho received a $15 million investment from Goldman Sachs. Kensho is developing a large-scale data processing and analysis platform for professional investors, which will be able to replace the work of existing analysts in major investment banks, quickly and massively perform various data processing and analysis tasks, and answer complex financial questions raised by investors in real time.

Of course, the word "technology" has always been associated with "unemployment" in recent years, which has also become a hot topic at the Davos Forum in the past two years.

However, Abhijit Gupta told reporters, "We don't think that fintech will make many people unemployed. As more money is invested in this field, more job opportunities will emerge. At the same time, this is not at the expense of job opportunities in traditional industries. In fact, many people have voluntarily left traditional industries because of opportunities in the technology field."

He also believes that financial technology is very important for improving productivity. "For example, the application of robots in the bank's operations department improves efficiency by reducing human errors and thus improves the customer experience. We can also redeploy employees to departments where they can continue to generate value."