JPMorgan to add new services on IIN network before possible spin off

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By:
Peter Lee
Published on:

JPMorgan is in discussion with more global banks, corporates and third-party service providers to join its Interbank Information Network.

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News that the entire Italian bank system is set to join a network on the R3 Corda blockchain platform to reconcile discrepancies in their separate ledgers for interbank transfers sends Euromoney scurrying to JPMorgan to check on progress with its Interbank Information Network (IIN).

While its developers, including the Italian Banking Association, proclaim the new Spunta Banca app as one of the first large-scale applications of blockchain in interbank markets, JPMorgan’s pioneering version went live 18 months ahead of it.

Established in the autumn of 2018 and running on the bank’s own Quorum platform, a permissioned variant of the Ethereum blockchain, IIN allows JPMorgan’s international network of correspondent banks – and other banks – to chase down the details of any failed payments to which they are a party, fill in missing identifiers or correct mistaken in-puts and so speed up reconciliation of delayed payments.

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John Hunter,
JPMorgan

John Hunter, global head of IIN at JPMorgan, says: “IIN provides a structured way for banks to reach out to any other bank on the network to see if they can share relevant information on a party to a payment that raises questions, even down to whether or not an account is open and active.

“Some delays in payments can come down to mistakes as simple as fat-fingering an account number or trying to pay into a closed account.”

Largest banks

Some 400 banks have signed letters of intent to join IIN, with 100 now using it actively. JPMorgan says that 28 out of the 50 largest banks in the world are now onboard. With 12 of the missing 22 being Chinese banks that require notification of no objection from their regulator, it has already gone well beyond the US bank’s correspondents.

“We are in the midst of discussions and making good progress with some of the largest banks in the world,” says Hunter.

It will be interesting to see if any of its large US peers join.

“It’s the network effect between like-minded banks – that see how useful IIN is – that provides value now and promises to provide more,” Hunter continues. “If it were to become ubiquitous across the industry, then that would be great. But we don’t need it to or expect it to ever have 12,000 banks.”

JPMorgan has no ambitions to rival Swift.

As central banks increase their pilot studies into central bank digital currencies, IIN does not stand out as a new killer app for actually moving money: rather a better way for banks to share information attached to payments.

“We certainly thought about a platform for exchanging money during development,” says Hunter. “There would be value in that, and we may even get there one day. But what the industry values highly right now is help to mitigate exceptions processing.”

It’s not a game changer, then. It’s just very useful.


We are establishing an ecosystem where participants can not only be consumers of services but also providers of services in the network 
 - John Hunter, JPMorgan

And more use cases are emerging.

“We are focused increasingly now on sanctions screening and pre-validation across multiple payment types, with another clear potential use case to share know your customer (KYC) information,” says Hunter.

“The Wolfsberg Group due diligence questionnaire on a payment counterparty, for example, could be loaded into a bank’s secure node and stored. If other network users then request that information, banks could choose whether or not to push it out to other nodes.”

JPMorgan is even talking to some large corporations about joining IIN.

Hunter says: “When processing payments, many corporates experience similar pain points as the banks. IIN can reduce friction for them as well. Giving them one standard way to address these exceptions with their banks could be extremely beneficial.”

In February, Reuters first reported that JPMorgan was in negotiations to merge its Quorum blockchain unit into ConsenSys, the development company set up in 2014 by Ethereum co-founder Joseph Lubin. ConsenSys is an industry leader that in May announced a collaboration with Microsoft.

Hunter won’t comment on ConsenSys, only saying: “We are still, as a network, committed to using Quorum as our underlying platform technology.”

However, the question around the banking industry now is whether IIN will always remain JPMorgan-owned.

Hunter says: “JPMorgan has participated in a lot of consortiums and my own take is that many of them move at the speed of the slowest member. We decided in the early days that if we took the lead, we could move at a faster pace.

“But JPMorgan doesn’t have access to any other banks’ data. All the data sits outside our firewalls with network operations outsourced to a top-tier consultancy.”

Possible spin-off

It remains to be seen what kind of value the network effect may eventually create.

“We are establishing an ecosystem where participants can not only be consumers of services but also providers of services in the network,” says Hunter. “For example, today JPMorgan plays both roles as well overseeing network operations.

“We also have a third-party app in production pilot on the network focused on payment routing that can help map the optimum path for a payment.”

So, is this turning into a business that might one day stand on its own?

“We are building an industry solution,” says Hunter. “The timing of if or when the business is spun out depends on IIN’s ability to provide enough value to make it a going concern as a stand-alone business.

“As it continues to scale up, the network expands and provides additional services, that could be a natural outcome.”

Sounds like a plan.