MasterCard has made a bold move towards blockchain, the purchase ledger technology that makes Bitcoin possible, with the release of some blockchain Application Programming Interfaces (APIs). In the past, the credit card company had shown some caution about digital currency and once expressed concerns that the risks outweighed the benefits, but this new announcement shows the company’s commitment to blockchain, which is predicted by many industry experts to be the future for the financial sector.
Like many other companies who are experimenting with blockchain, MasterCard is taking a collaborative approach; the launch of the APIs means developers will have the opportunity to test out the APIs for a variety of uses, including business-to-business transactions, which is commonly referred to as B2B payments.
Developers can access the APIs via the MasterCard Developer website, which was launched in September. The APIs concentrate on core blockchain, faster payments and smart contracts, and the site also gives developers access to several other financial platforms.
MasterCard has stated that APIs will be available on a case-by-case basis, and they are aimed at allowing tech companies, financial institutions and merchants to create new apps. The blockchain core API will allow partners to run their own blockchain nodes and define their own transactions, while the smart contacts API will allow developers to create their own scripts, which can be used in custom blockchain apps.
MasterCard told Coin Desk that the release would help to fuel interest from banks and developers. MasterCard’s Justin Pinkham added they believed “there is a role of blockchain in the future of commerce.”
To get started, developers in the financial sector can sign up on the MasterCard Developer website and start a new project. Once they have done this, they can choose an API and start building a team.
MasterCard’s API launch came shortly after Chain announced that it was making an open source blockchain platform available to developers, and the announcement is the latest in several new developments in this area.
The Exploration of Blockchain
The credit card company has been openly exploring blockchain and how it could be used in the future. MasterCard made its interest in digital currency public when it invested in the Digital Currency Group, and Ed McLaughlin, head of Emerging Payments at MasterCard has previously stressed the importance of investing in payment industry innovations.
In addition, MasterCard has been actively involved in blockchain technology via its Start Path Global initiative and Ann Cairns, MasterCard’s International President, had previously described blockchain as an “exciting new technology.” She added that the company was already looking at how they could use it alongside their core systems.
The exploration into blockchain is a necessity if credit card companies like MasterCard don’t want to lose out to rivals, and MasterCard has previously been advised of the need to look at newer, more advanced technologies, including blockchain. In a report, the Sequoia Fund stated:
“MasterCard’s virtues are well-appreciated by the stock market but the evolution of mobile payment habits and the rise of blockchain ledger technology could pose longer term challenges to the company’s wildly profitable business model.”
Some describe blockchain as disruptive technology, which could kill the credit card companies, which is why they – and the financial sector in general – must examine these newer technologies. However, it is not just the financial industry that could gain from it. In the future – if blockchain lives up to its apparent potential – it could become an integral part of the way we download music, vote and use reward programs, too.
MasterCard Files Blockchain Patents
In a further development, MasterCard has also applied for four blockchain related patents; details of the patent applications were released by US Patent and Trademark Office on November 24, 2016. The patent application relates to an application that would be integrated into an existing payment network, and it includes a patent that covers the fraud control of blockchain payments. Furthermore, the patents will seek ways to improve the authorization of transactions and their processing.
However, MasterCard are not the only company filing patents that could help to drive the use of blockchain forward. The rush towards this technology has led to numerous patents being filed, and the Wall Street Journal reported that in the last three years there has been a considerable surge in applications as financial institutions become increasingly keen to test the possibilities. The newspaper estimates that some 2,679 patents had been filed relating to blockchain, but this figure includes patents for analytics and fighting cybercrime as well.
The Fight Against Credit Card Fraud
If blockchain is used as widely as it is predicted in the future, it will have benefits for both consumers and retailers. However, one of the areas it could impact on the most is fraud.
Despite efforts to counter it, fraud is a continuous threat to the credit card industry and to consumers. 10 percent of Americans have been victims of credit card fraud; blockchain is one possible answer. Adopting the purchase ledger system would be one way to makes transactions easier to monitor for fraud, and it increases the transparency of payments.
Blockchain could also play a role in combating e-commerce fraud. EMV has been introduced with the aim of reducing card present fraud, but there are concerns these efforts will lead to increased fraud in other areas, with e-commerce being a common target.
There are several companies already integrating blockchain as a means to manage fraudulent activity in the e-commerce sector, and more effective anti-fraud methods are necessary as fraud in this area continues to climb.
The Changing Face of Payments
The exploration of blockchain by many of the credit card companies and high-profile banks comes at a time when the way we pay for things is radically evolving. Mobile and internet transactions are showing strong growth, with mobile/e-commerce transactions expected to be worth more than $27 billion by the end of 2016, and there is growing demand for a more efficient, cost effective payments system.
As has been highlighted recently, the United States requires a faster, more secure payments system that benefits both the credit card companies, financial institutions and the consumers that rely on them. Mobile payments have helped to create a more convenient means of paying for transactions, however, in the future, blockchain could possibly play a part in this too.
But just how keen are consumers to embrace blockchain? Research indicates that 34 percent of Americans aren’t confident in their knowledge of current payment systems, and it is unlikely that they will be broadly accepting of blockchain, unless they have adequate assurances over privacy and security.
Indeed, in a recent report, Deloitte stated it would take a while before consumers became comfortable with blockchain. Deloitte says issues around cyber security need to be addressed, and if blockchain is to be used more widely, problems with scalability need to be considered.
However, despite these concerns, most financial industry experts expect blockchain to have an impact on the payments industry at some point in the future. By 2025, 36 percent believe it will already be impacting on some niches, while 30 percent believe blockchain will be the catalyst for new innovations in payment systems.
However, others, such as Dr David Everett of Microexpert, is more skeptical of the potential for using blockchain for payments.
Another area where blockchain could benefit the credit card industry is in the running of rewards programs: it could allow points to be credited more efficiently, and bring reward card programs up-to-date.
Reward programs are commonplace in the credit card industry. However, current reward programs have been described as ‘antiquated’ and getting points credited can be slow: managing them via blockchain would allow real-time updates.
Using blockchain could also significantly lower the incidence of fraud. This is an issue that is rife in the loyalty card sectors, with 72 percent of loyalty program managers reporting it as a problem. However, in an interview, Karen Hsu of BlockCypher, explains that blockchain could be used to spot fraud problems, and the company is already working with an unnamed credit card company to help bring its modernize its rewards program.
Blockchain Is “No Longer a Choice”
As noted earlier in the article, it is widely agreed that blockchain could be an essential part of the payments system of the future. If the predictions are accurate, blockchain could one day revolutionize the financial world, making transactions faster, more secure and transparent, and with the evolving payments system and consumer demands for a more efficient system, blockchain isn’t something that the Fintech sector can afford to ignore if it wants to stay competitive.
MasterCard’s are far from the only company exploring blockchain. Its rival, Visa, also see the importance of it. In December 2015, Nick Jones, Visa’s Head of Digital Communications and CSR, said:
“It’s clear that another transformation is happening. 2015 has turned blockchain into something the industry has to live with. It is no longer a choice anymore.”
For its part, Visa is taking a different approach to MasterCard, and is collaborating with the San Francisco-based Chain. The partnership will allow Visa to use Chain’s blockchain technology to create a new platform called Visa B2B Connect. The platform, which is due to piloted in 2017, aims to provide businesses with a means to make real-time transactions, while speeding up delivery times and lowering the costs in sending/receiving payments.
Talking about the launch, Jim McCarthy, Executive Vice President of Innovation & Strategic Partnerships for Visa Inc., said:
“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.”
However, the initiative isn’t Visa’s only move towards blockchain. In what is described as “a first-of-its-kind blockchain-based settlement system,” Visa has joined forces with the BLT Group via the Visa Europe Collab. European banks have been invited to work in partnership with Visa; this will allow banks to join the network and send transactions in a variety of currencies to other participating banks.
The Proof of Concept testing aims to establish how blockchain can improve settlement times and lower costs while also automating some of the regulation/compliance requirements of financial transfers. Moreover, Visa has teamed up with Epiphyte for a Proof of Concept collaboration to establish how blockchain could improve remittance services.
Synchrony Financial are also keen to join the race, and have recently become the first credit card company to join the R3 consortium. Carol Joel, Synchrony’s Executive Vice President and CIO, said:
“We are excited to be a part of the R3 consortium to explore use cases for distributed and shared ledger technology. Having access to the R3 network and research will be valuable as we think through the many opportunities for blockchain to be leveraged across the consumer finance landscape.”
However, while MasterCard, Visa and Synchrony Financial are in the early stages of examining blockchain’s use, Deloitte are one step ahead. The New York-based company has already tested out a contactless payment card among a limited group of employees, which uses a blockchain-based system, and following a successful trial, MetroBank in the UK is to launch blockchain card payments in 2017.
MasterCard’s release of the blockchain APIs shows its commitment to blockchain technology and demonstrates a change in attitude. It wasn’t that long ago that MasterCard were only cautiously welcoming the advances in digital currency. However, credit card companies – and the financial sector in general – seems to be coming to realize the many advantages that blockchain could offer.
If expert opinion is correct, credit card companies embracing emerging technologies such as blockchain might become a necessity if they are going to survive in the distance future; this could partly explain why a growing number of companies in the financial/payments sectors are examining how it could be used to transform the industry.
However, if blockchain does live up to its potential, it won’t just change the way the financial sector works, but it could also have positive ramifications for the way businesses and governments work in the future, too.