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Visa and Chain launch blockchain platform for cross-border B2B payments

Global payments technology giant Visa Inc. recently previewed a new payment platform for financial institutions. Visa B2B Connect is described as a simple, fast and secure way to process business-to-business (B2B) payments.

Global payments technology giant Visa Inc. recently previewed a new payment platform for financial institutions. Visa B2B Connect is described as a simple, fast and secure way to process business-to-business (B2B) payments.

Visa Logo“Visa aims to significantly improve the way international B2B payments are made today by offering clear costs, improved delivery time and visibility into the transaction process – ultimately reducing the investment and resources required by banks and their corporate clients to send and receive business payments.”
— – Visa

Visa is currently the second largest global payment card company. RBR’s Global Payment Cards Data and Forecast’s study revealed that the company has a 32 percent market share, second to only China’s UnionPay with 37 percent, and ahead of MasterCard with 20 percent.

The payment card giant is neither a bank nor a credit or debit card issuer, so it does not extend credit consumers. The company simply provides electronic payment services to consumers, businesses, financial institutions, and governments in more than 200 countries and territories.

The Visa Network (VisaNet) is one of the most advanced processing networks, and capable of handling more than 65,000 transaction messages per second. The company’s website claims that the network currently authenticates buyers and sellers with 99.7% accuracy in milliseconds, and has processed $6 trillion in 175 currencies.

The company is actively making significant enhancements to its network in preparation of a, “New era” in payments. “We’re at the beginning of another shift in the ubiquity of payments-and in the meaning of everywhere,” says Sam Shrauger, Visa SVP of Digital Solutions. “Almost any connected device can be transformed into a place where shopping, buying and paying happen. This is the new era of connected commerce.”

“The time has never been better for the global business community to take advantage of new payment technologies and improve some of the most fundamental processes needed to run their businesses.”
— – Jim McCarthy, Visa Inc executive vice president, innovation and strategic partnerships

The company explains that Visa B2B Connect is a near real-time transaction system designed for high-value international payments between participating banks. The platform is managed by Visa from end to end, and uses an enterprise-grade distributed system called Chain Core, which enables institutions to initiate, operate, or connect to a blockchain network.

The technology is provided by Chain, Inc., a San Francisco based blockchain startup founded in 2014. The FinTech company builds, deploys, and operates blockchain networks tailored for financial products and services. The startup has raised over $40 million in funding from Visa and Khosla Ventures, RRE Ventures, and strategic partners including Capital One, Citigroup, Fiserv, Nasdaq, and Orange. Chain won the Inaugural Award for Best Fintech Innovation from Juniper Research Future Digital Awards in September.

The B2B payments market is growing fast, according to Deloitte, but financial institutions have been focused on business-to-consumer (B2C) payments. The firm predicts that the US B2B payments market will grow at the compound annual rate of 5.8% from 2014 to 2020, or from $16.5 trillion to $23.1 trillion. This market represents a, “Significant opportunity for those who play in this space,” the firm states.

McKinsey & Company shares Deloitte’s sentiment, stating that B2B segment of the overall cross-border payment market “is expected to grow rapidly.” The firm found that almost 80 percent of all cross-border payments are B2B. However, the market is in dire need of modernization.

Cross-border transactions are complex, have a high failure rate, and incur undue costs, McKinsey states. Over 90 percent of international payment costs stem from efforts to manage counter-party bank relationships in the back office. The firm also referenced an independent study by Traxpay which states, “About 60 percent of business-to-business (B2B) payments require some kind of manual intervention, each taking at least 15 to 20 minutes.”

While banks are struggling with the high cost of cross-border payments, many non-bank players are attracted to the market’s high margins and low efficiency. This includes money-transfer operators (MTOs) such as MoneyGram and Western Union. While MTOs have only captured about 5 percent of global revenue from the business-to-consumer (B2C) and B2B segments, “things are changing,” McKinsey states.

Saxo Payments recently surveyed issuers, acquirers, payment service providers and merchants. They found that 67% of respondents use traditional bank transfers for cross-border payments themselves or for their merchants. However, 63% are unsatisfied with the time taken from sending payments to receiving them. Almost 80% of respondents stated that if they found a solution which cost less, they would change payment providers.

Saxo Payments Logo“72% of respondents in our study would be open to employing a lesser-known payment provider, if they were able to provide a better and cheaper service. So it does appear that companies are beginning to see that they do not need to use only the traditional providers to be secure, compliant and get a good service.”
— – Saxo Payments

Visa is not alone in changing focus. Last December the Society for Worldwide Interbank Financial Telecommunication (SWIFT) announced a global payments innovation (GPI) initiative for cross-border payments using its legacy system. By January, 45 leading banks had signed up. By September, over 80 banks had joined the initiative.

The initiative invloves creating a new service level agreement (SLA) rulebook for cross-border payments, the company explained. A pilot launched in April runs through till December, and SWIFT announced that the first phase was successfully completed in September. The service is planned to go-live in early 2017.

“The gpi pilot banks prove that our innovative approach to cross-border payments works,” says Wim Raymaekers, SWIFT Global Head of the Banking Market and project lead for the initiative. “We are empowering banks to use existing platforms and combined that with innovative technology provided by SWIFT to facilitate end-to-end payments tracking."

The new service will initially focus on B2B payments. Users will be able to receive payments for same-day use, with transparency and predictable fees, end-to-end payment tracking, and rich payment information. This will help them grow their international business, improve supplier relationships, as well as achieve greater treasury efficiencies, SWIFT claimed.

Association for Financial Professionals Logo“Through the global payments innovation initiative, banks can use existing technology to quickly bring visible improvements to B2B payments for their corporate customers. From a corporate perspective this kind of development in the payments space is very encouraging as it means no significant changes need to be made to internal systems in order to potentially reap the benefits of the program.”
— – Magnus Carlsson, Association for Financial Professionals Treasury and Payments Manager

Although Visa is the biggest company to exploit blockchain technology for this sector, several startups offer B2B services.  An African payment and trading platform that uses bitcoins to transfer value, BitPesa, currently offers B2B payment service across Africa. The company was founded in 2013 and now claims to cover 85 countries, with 6,000 users, and has processed over 17,000 transactions.  Align Commerce is also operational. The company set out last November to modernize the B2B payments industry with the bitcoin blockchain.


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