If you can't beat them, why not join them? That's exactly what JPMorgan Chase (NYSE: JPM) just did. Instead of sitting back and letting virtual currencies slowly but surely cement their position in the market for online payments, the firm decided to take matters into its own hands.
In a recently published patent application, the bank is proposing a computerized payment system that could, more or less, make Bitcoin obsolete. What does this mean for the future of the digital currency and online transactions?
Taking action
JPMorgan proposes a computer-implemented method of making payments anonymously "without provision of an account number or name from the payer." It includes digital wallets, "web cash," and the ability to transfer funds virtually to anyone as easily and quickly as sending an email. Does any of this sound familiar? Isn't that what Bitcoin -- the controversial "crypto-currency" does?
JPMorgan's payment system introduces a Payment Portal Processor, or PPP, enhanced electronic wallet with special credit push and form filling features. It's designed to enrich the e-commerce experience by enabling consumers to shop on the web without pausing to fill out lengthy forms with personal financial and shipping information. This will be done automatically.
The PPP also "provides the user with a form of virtual cash that is secure and guaranteed." Not to mention, it narrows transaction costs as compared to the use of credit cards -- something merchants will definitely cheer for.
However, payments will still be processed through the existing Electronic Transfer Fund networks we use to pay for stuff online. Also, JPMorgan's e-wallets will be stored on a "host web server," presumably under the bank's control. Bitcoin, on the other hand, thrives on decentralization by relying on peer-to-peer exchanges.
And Bitcoin transactions are stored on Blockchain, the record keeper shared by all nodes participating in the Bitcoin protocol-based system. That's what makes this digital currency revolutionary. Will JPMorgan manage to steal its thunder?
Is it too late?
The filing is actually a renewal of a patent that has been gathering dust for more than 10 years. And it will probably take some time for JPMorgan to turn this so-called "new paradigm" into reality. Meanwhile, Bitcoin is making headway on multiple fronts.
Statistics website Coinometrics shows that it's hot on several payment networks' heels, including Western Union (WU 2.62%), in terms of volume. Bank of America (BAC 2.55%) raised some eyebrows recently by calling it a "major means of payment for e-commerce that has the potential to emerge as a serious competitor to traditional money transfer providers." More importantly, Wall Street and Silicon Valley are both keeping an eye on Bitcoin looking to cash in on this love-it-or-hate-it digital cash.
Earlier this year, Google's (GOOG 2.30%) venture capital arm invested in Bitcoin start-ups, such as Buttercoin and Ripple Labs.Last month, China's oldest Bitcoin exchange, BTC China, ramped up $5 million from Lightspeed Venture Partners and Lightspeed China Partners. And most recently, Coinbase, a San Francisco-based company that facilitates transactions denominated in Bitcoins, raised $25 million in venture capital as it seeks to expand its operations.
"Every day somebody comes in and says, Bitcoin is going to be as big as the Internet," says Chris Dixon, a partner at venture capital firm Andreessen Horowitz. Is JPMorgan a day late and a dollar short?
Who holds all the cards?
JPMorgan is the largest nationally chartered bank. In other words, the Fed can stick its nose in the bank's business. However, this could be a double-edge sword. Bitcoin made a name by staving off any kind of government intervention. That's something America's largest bank by assets can't do.
Last month, in a letter to the Homeland Security committee, Ben Bernanke stressed that "the Federal Reserve would only have authority to regulate a virtual currency product if it is issued by, or cleared or settled through a banking organization that we supervise." He added that "Bitcoin may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system."
If we read between the lines, what is the gist? Do Bernanke's words mean that regulators would be more than willing to, in some way, foster a new online payment system that it could keep tabs on? If JPMorgan provides consumers with a viable alternative to credit card fees and existing virtual cash, won't then the world's most controversial digital currency lose its mojo?
Final thought
No matter what the outcome may be, the encrypted online currency is doing what it's supposed to do. It's driving innovation in behalf of a financial system that's pretty much outdated. If Bitcoin hadn't made waves, who knows when and if JPMorgan would pursue this game-changing patent.
