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Sangara Narayanan
Sangara Narayanan
Articles (562) 

Visa Testing Blockchain Technology in Europe

If successful, Visa’s pilot program for blockchain could revolutionize the financial industry

After effectively dealing with its long-term threat Paypal (NASDAQ:PYPL) by striking a deal with the company, Visa (NYSE:V), the world’s largest payment network, is now after a new opportunity called blockchain. The technology is all set to disrupt the financial world and was the backbone on which the digital cash phenomenon BitCoin was developed. Visa has now teamed up with BTL Group (TSXV:BTL) to run a test project with several banks in Europe.

In a blog post earlier this week, Visa announced that it is looking for partners to join a new pilot program that they are running with the UK-based startup blockchain specialist.

“We’re now inviting a small number of European banks to participate in the project alongside us and BTL. Participating banks will be able to connect to the network and send funds to other banks in the network across multiple currencies. We’ll work closely together on the development and implementation of the PoC, ensuring that all participants come away with new knowledge and insight into the role that the blockchain could play in interbank settlements in the future.” - Visa

Payments between banks within a country are typically fast, but overseas settlement times are much higher. In many cases, the money has to move through several intermediaries before reaching its destination account. Blockchain cuts through that process and helps save time, increase efficiency and reduce costs.

What is Blockchain?

Blockchain is basically a software ledger, a shared resource that can be used to record the history of transactions. Since the ledger is shared with all parties to the transaction, settlement times can be greatly reduced, and depending on permission-based access, the flow of funds is monitored. This also cuts down the resolution time for disputes when they arise.

The wild initial success of bitcoin has shown the world that there is promise to this technology, and now big companies like IBM (NYSE:IBM), Visa, JPMorgan (NYSE:JPM) and many more are slowly stepping up their efforts to implement this game-changing technology.

Why Visa Is Jumping in Now?

Blockchain technology is still largely untested at scale, which is why Visa is jumping into the fray. If it does what it is supposed to, it will drastically change the way the world’s financial systems work. But with blockchain being a relatively new technology, there is no way to foresee how it will impact the future of Visa’s business.

The Linux Foundation’s Hyperledger Project was set up as a collaborative effort to advance blockchain technology, and was set up by big names like IBM, J.P. Morgan, Deutsche Borse and Intel (NASDAQ:INTC). Visa is merely an early adopter looking to test the viability in a real-world banking environment where it has a vested interest.

The Hyperledger Project and independent initiatives by companies like IBM are already showing promise. In fact, IBM has already been able to cut its vendor dispute times from several days to under 24 hours using blockchain’s transactional monitoring capabilities. When that scales up to hundreds of billions of dollars moving across borders, this will save a tremendous amount of time, money and effort.

Blockchain’s security as a method of managing large volumes of financial transactions is controlled at various levels, the most important of which is how permission-based access works within the system. In addition, the inherent non-erasability of data will provide a greater measure of accountability to all parties in a particular transaction.

The Impact on Visa’s Transactions

The end result of using blockchain is to reduce settlement times whether it is between banks,  the stock exchange, or any other setting where financial transactions need to be executed in a seamless manner. The potential for use is huge, and Visa is betting on the technology to save billions of dollars spent or lost each year in dispute settlement, payment tracking and other transfer-related process.

The results of this pilot program will decide whether Visa intends to implement it with banks that it regularly deals with around the world, but the tech itself goes beyond Visa’s scope. If successful, it will validate the technology and catapult it to almost instant fame as a revolutionary new transactional monitoring system that every financial institution in the world is going to want.

Disclosure: I have no positions in any of the stocks mentioned above and no intention to initiate a position in the next 72 hours.

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About the author:

Sangara Narayanan
Sangara Narayanan holds an MBA from Kent State University, Ohio, and has worked on the floor as a trader in New York. You know where. He is passionate about capital markets and specializes in business analysis, stock valuations and making chicken curry

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