What is the J.P. Morgan's IIN? And why does it require blockchain?

JPM’s New Take To Dominate Global Banking

Blockchain technology has slowly penetrated many areas of our world, at times in ways the end-user has no clue about. One of the areas that has embraced the technology the most has been banking: 

Although initially reluctant to even accept the technology as an asset, over the last few years more and more banks have both started trading cryptocurrencies and adopted blockchain-based solutions.
One of the biggest of these solutions comes from JPM, who have slowly rolled out a blockchain-based interbank network on top of the Quorum blockchain.

Banking is a complex business, because banks run independently of each other. This means that bank A can’t really know info about bank C, and any transaction among them can take days. 

However, users naturally expect that whenever they pay for something they can take their products home on that same day. The idea that you might have to pay something with your card today and pick it up in two days when it clears would be enough to make many people go back to using cash.

The Interbank Information Network is a blockchain-powered system coded by JPM that attempts to serve as a 21st-century bridge between different banking entities, allowing them to ping each other for information and balances in quick, secure, and confidential ways.

It is nothing necessarily new by itself: We have had interbank information networks for decades powering all of our electronic banking. However, the blockchain is a new addition to the process, giving it transparency and an extra layer of security.

A specific use for a specific blockchain

This is particularly important for transactions that can be potentially delayed, such like wire transfers, since any error in the data could cause the users to lose days waiting for payments to clear while also losing the hefty fees tied to such transfer methods.

In general, although most of the electronic banking works great as-is, there isn’t a system that allows international banks to contact each other. This is why wire transfers take long, and why fees are so high – a transfer often has to go through several banks before it reaches its destination.

Banking as a unit hasn’t moved from the model, established decades ago, but over the last two decades many online payment methods have offered the functionality, leaving banks lagging behind. While a PayPal or Uphold transaction will clear within seconds and cost a tiny sum, doing the same thing using bank accounts could take days and cost more than ten times the fee.

The IIN is poised to change that by creating a single, unitary blockchain most banks can use to contact each other directly and securely, allowing for transactions that used to take days to clear to happen much faster.

How well established is it?

The IIN is still a project in process, and thus most banks globally don’t yet conform to it. The effort started barely two years ago – a very short time for banking technology standards – and has seen constant growth during that time. Just this month the project broke the milestone of 340 banks joining the platform, securing its place as the biggest blockchain-based interbank project in the world.

These banks are spread all over the world and include institutions both big and small, although many big players – such as Bank of America – are yet to join the effort. Still, adoption for new technologies and proposals is always slow, particularly so among financial institutions. As the proposal solidifies and more banks start using it, the bigger players will doubtless feel the need to join or keep using obsolete technologies.

Does it have a future?

It does. An overhaul of interbank processes has been a long time coming, since while the whole world has advanced that particular sector is still stuck in the 80s. So far, a huge standard hadn’t been created to solve the problem, but with JPM proposing it, this one has a lot of clout behind it.

This doesn’t mean the project will revolutionize banking – our financial systems have evolved beyond just banks, and there’s a chance this project will flourish but remain relatively unused as customers choose to keep using other established payment methods that don’t require banks.

Still, this is a major step for banking, as it should make many transactions easier, faster, and cheaper. Usability is one of the largest problems with current-day banking, and every step taken towards that goal has to be applauded. 

This might well become the very first big blockchain implementation to take flight, making one of the sectors that hated the technology the most the first one to end up embracing it.