Why VISA Europe is testing remittances on the Bitcoin blockchain

    VISA Europe became the latest financial institution to announce its use of blockchain technology this month, and it is currently using the emerging technology to facilitate remittances.

    However, while many peers are currently looking to build closed or private ledgers, Jon Downing, innovation partner at Visa Europe Collab, has made it clear that their current testing projects use the running Bitcoin blockchain.

    In an interview, Downing and Edan Yago, CEO of Epiphyte, a blockchain services company and partner in the project, took the initiative to discuss the project in more detail. He completed the payment by using a "proof-of-concept". They explained that in the test environment set up by Epiphyte, funds were sent across borders using blockchain and received through Visa devices.

     “You can send a payment in fiat currency and receive it through M-Pesa (a Kenyan mobile money service), but by leveraging a blockchain provider, you can complete the remittance transaction,” Downing said.

    The test is of particular interest because the remittance sector has long been considered a potential disruptor of peer-to-peer payments on blockchain.

    So far, the idea that bitcoin can make remittances cheaper has been resisted by many in the industry, such as MoneyGram and Western Union, who have tried to portray cash as a means of payment as unlikely to be replaced by any digital currency.

Solving the last mile

     Yago pointed out that the challenges in the remittance industry described by MoneyGram and Western Union are due to their inflexibility as service providers and lack of creative thinking.

     Yago argues that Bitcoin is a creative solution to the “last mile” problem, since the industry believes that the main cost of remittances comes from transporting physical coins to specialized exchange points.

Yago said,

     “The biggest opportunity here for Bitcoin is that you can fragment this, and by using a standard that is open and non-proprietary, you can have local players integrate into the system, which gives you a much broader network effect.”

    Instead of investing in up and down channels, Yago believes that a large payment institution like Visa can easily leverage the open Bitcoin blockchain technology to expand its network coverage.

     Currently, the project is halfway through its planned 100-day development time. Right now the "proof of concept" is being used primarily for research purposes, and Downing said the results will be presented internally.

     If the “proof of concept” proves successful, he suggests it could enter an “incubation phase” with specific financial services partners in specific markets.

Choose Bitcoin

     Other similar projects, Visa Europe and Epiphyte, have created similar internal ledger systems that merge banks’ own ledgers with distributed ledgers using a protocol from Ripple, with similar conclusions and reasons for using a more private version of the bitcoin blockchain.

     “Visa already has the most powerful payment network in the world, and with strong proof of functionality, we have the ability to extend its functionality to any other payment network.”

     To put that into perspective, Yago described the “proof of concept” as a cross-border settlement engine that enables “real-time settlement” on a distributed ledger and will eventually span “multiple proprietary payment systems.”

     Based on bitcoin’s security and network effects, he asserted that blockchain is an ideal way for corporate clients like Visa Europe to scale their payment systems. For example, he noted that if one bitcoin provider goes down, the open nature of the bitcoin network would allow users to use an alternative payment path through other providers.

He continued,

     “You can transmit prices dynamically on a per-transaction basis because bitcoin is an open network. It’s not that we’re not tied to a particular provider, it’s just that you don’t need to know in advance which provider you’re using.”

Yago said this is why he has confidence in Bitcoin.

Project Origin

    Downing is also keen to put the project on a wider scale through Visa Co-Lab Europe, the company’s innovation arm, to build creative new “proofs of concepts”.

    He noted that Visa Europe is also working on new technologies in the Internet of Things and retail environments, calling blockchain a “very important focus.”

   “There is a small group of people in the Visa Europe Joint Lab who are exploring digital currencies and blockchain, which will be an opportunity for Visa Europe and the payment ecosystem.”

    Today, he emphasized that the most critical point for Visa Europe is whether blockchain can make transmission faster and gain more scalability.

    The project began on September 10, and Downing said the "proof of concept" will be developed until December 7, after which the partners will draw up a report on their findings. Based on the conclusions, the project will move to the next stage, he said, and a test activity group will be set up in the UK.