After starting trials of JPM Coin back in 2019, late last year Onyx by JP Morgan rolled out programmable payment functionality, with Siemens as the initial client to use it. Now First Abu Dhabi Bank (FAB) is the first financial institution to pilot the functionality, following its initial use of the blockchain-based bank account system last year.
FAB’s latest trials included initiating payments based on time triggers and balance thresholds. In the simplest scenario, one can imagine a corporate treasurer could program the transfer of funds out of an account if the balance is too high, or into the account if it’s too low. Or, a planned payment is only sent out depending on its impact on the account balance.
“One of our foremost objectives has been to bring new and innovative digital solutions to our clients and the industry at large,” said Naveen Mallela, Co-Head of Onyx by J.P. Morgan. “We believe that digital programmable ledgers will form the foundations for the finternet in the coming years.” The reference to the finternet is a nod to the vision of tokenized and programmable money outlined by the BIS head Agustín Carstens.
While some banks have provided limited trigger functionality along these lines for a while, it’s usually simplistic and inflexible. The advantage with JPM Coin and other programmable payment solutions is they are more adaptable to client demands and can have both real time and event-based features.
In the absence of this more comprehensive functionality, some corporate treasury software solutions perform the heavy lifting.
The future of programmable payments
JP Morgan argues that putting the logic on the bank side achieves better execution response times and finality. In other words, if it’s triggered by corporate treasury software, the connection or payment could fail, but that’s less likely with something like JPM Coin. Likewise, the programmability features could minimise the use of credit lines.
“Banks, with their rich transaction data, are in a better position to build a wide range of programmable scenarios, including instructions within payments and obligation-linked payments that are settled in an all-or-none manner,” said JP Morgan in a statement.
Future potential use cases include automated condition invoice payments, margin funding and settlement solutions.
Stepping back, much of the programmable payment functionality being tried and executed at the moment is still quite simple. Unlike some of the riskier public blockchain functionality, banks have to make sure any programmable features accessible by clients are safe.
However, over time the nature of the programmability will expand to include far more complex scenarios, including ones we have not yet imagined. It’s hard to design infrastructures to support future functionality we can only vaguely glimpse today. In our research on tokenized deposits, we show that some designs currently being trialed could limit that future functionality, specifically with respect to programmability. There are ways to address these design limitations, with trade-offs as always.
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