The credit card company, which has been investigating blockchain’s potential for 18 months, has teamed up with BTL Group, a digital payments start-up, to adapt its technology for processing interbank payments.
Visa’s move underlines how many of the biggest financial services companies have switched in the past two years from once viewing bitcoin with suspicion to now scrambling to harness the power of the cryptocurrency’s underlying technology.
A blockchain is a shared digital database that allows transactions to be recorded and verified electronically over a network of computers without a central ledger. Cryptography is used to protect the data from fraud or hackers.
Hendrik Kleinsmiede, co-founder of Visa Europe Collab — the company’s innovation hub — will say in a blog post that Visa’s latest project is designed to “reduce the friction of domestic and cross-border transfers between banks”.
“We’re now inviting a small number of European banks to participate in the project alongside us and BTL,” he will say. “Participating banks will be able to connect to the network and send funds to other banks in the network across multiple currencies.”
The project is designed to cut costs, speed up settlement time and reduce credit risk in the market for moving money between banks both domestically and across borders.
It could represent a challenge to the Swift interbank payment system, the main messaging system used by banks to handle large money transfers. Swift has recognised the potential threat and has itself been examining blockchain’s potential.
BTL was founded last year by the brothers Guy and Hugh Halford-Thomson, who previously ran a bitcoin brokerage and operated the UK’s first bitcoin ATM, which was once used by George Osborne, the former chancellor.
The project being developed with Visa uses smart contracts — code written on to the blockchain that automatically carries out certain actions — to handle much of the regulatory and compliance requirements of interbank transfers.
The smart contracts could reduce the counterparty risk of cross-border transfers by making them simultaneous, rather than leaving one lender on the hook for a time, Guy Halford-Thomson told the Financial Times.
Mr Kleinsmiede said Visa aimed to complete the “proof of concept” within 100 days, by which time he expected to have found banks to send money between each other using the blockchain technology.
“Through the use of smart contracts and blockchains I believe we can create a fast, compliant and low-cost interbank payment and settlement service, with embedded regional compliance,” he said.
Visa’s innovation lab has already announced other projects involving blockchain technology, including micropayments, machine-to-machine transfers and business-to-business payments.
Last week, four of the world’s biggest banks — UBS, Santander, Deutsche Bank and BNY Mellon — announced they had teamed up with broker ICAP and technology developer Clearmatics to develop a form of digital cash that they believe will become an industry standard to clear and settle financial trades over blockchain.