Financial services giant Mastercard has snapped up yet another patent, this time for fractional cryptocurrency banking.
According to the document published by the U.S. Patent and Trademark Office (USPTO), Mastercard wants to apply principles of fractional reserve banking to cryptocurrencies. The filing explains how the payments processor will use laws of the fiat banking system to help solve safety problems associated with cryptocurrency transaction. By applying the centralized fiat banking system, Mastercard claims it can create a system that safely stores and protects both consumers and merchants.
Inventor Steven Charles Davis, senior consultant of research and development at Mastercard, claimed the nature of blockchain transactions creates a disadvantage for the consumers, who has to wait for their transaction to be approved by an unknown person. The customer has to “rely on the payer’s good faith that their transfer will be valid,” according to the patent filing, and in some cases, payees have lost their currencies after individuals failed to confirm their transactions.
The financial giant has also sought patents for other blockchain-based applications. In July, Mastercard was awarded a patent for a system that reduces the time it takes to complete a cryptocurrency transaction.
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Payments giant Mastercard is reported to be exploring a number of new technologies, including blockchain, as the group looks to improve the general efficiency of its payments networks.
Through its Dublin-based research arm, Mastercard Labs, the firm is looking into a range of cutting-edge technologies to improve its business—including blockchain, as the division seeks to build on its achievements since it was launched in 2012, The Irish Times reported.
As well as improving their existing infrastructure, Mastercard Labs also has a remit to explore new products, which could see its parent company ultimately offering a range of new solutions backed by blockchain technology.
Ken Moore, the firm’s head of research and development, told the news outlet that while the division currently operates at a loss, its contribution to the wider Mastercard group was already significant, and would become increasingly relevant over the next few years.
Mastercard Labs has already delivered a number of successful innovations, including the QKR app—an ID verification app already being deployed by several large global brands.
With plans to scale up the 400-strong team by another 175 hires in the near term, Mastercard Labs has indicated it intends to double down on these successes, in exploring new ways blockchain technology can be integrated within their business.
The news comes in the wake of a substantial settlement reached by Mastercard and Visa, following a class action lawsuit over price-fixing, reported to have been settled for an amount in the region of $6.2 billion.
The pivot towards blockchain at the payments giant reflects the ongoing trend of interest from the mainstream financial world in the technology, despite their outward opposition to the sector.
With industry names like Mastercard now going further and faster with their blockchain development, it is expected that more mainstream institutions will follow suit as the benefits of distributed ledger technology become more apparent.
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First, Visa and MasterCard settled a class-action lawsuit over price fixing that reportedly cost the credit card giants as much as $6.2 billion. Now, reports are surfacing that major banks could be fined as much as $400 billion by 2020 for malpractice. So much for crypto being the bad guy, as traditional finance pundits would have everyone believe.
Quinlan and Associates indicates that research into US and European banks could potentially face the huge fines by regulators. The majority of the penalties are a direct result of the financial crash from 2008. The $400 billion does not include fines from other areas, such as unfair billing practices or money laundering.
This past Monday, JP Morgan Chase was fined by the Commodity Futures Trading Commission (CFTC) $65 million after it was found guilty of not doing enough its part to protect the US Dollar International Swaps and Derivatives Association Fix (USD ISDAFIX) from 2007 to 2012. ISDA was established in 1998 and ISDAFIX is a reference rate value for fixed interest swap rates, correlated to dollars, pounds, Swiss Francs and Euros.
The CFTC said that JP Morgan published false interest rates just prior to the daily reference was captured between the five-year period. In submitting false data, the firm saw its derivatives positions benefit at the expense of other interest rate products that used the same common interest rate value.
BNP Paribas also received a hefty fine from the CFTC. The bank was ordered to pay $90 million after investigators determined that traders in the bank’s investment wing were actively bidding and executing trades at the moment the ISDAFIX was being released. This enabled them to influence the index, which impacted foreign exchange benchmark rates. The CFTC also fined the Royal Bank of Scotland $85 million for illegal practices similar to those of JP Morgan and BNP.
Some may recall that another bank, Well Fargo, has had its share of financial difficulties and missteps every year for the past couple of years. Most recently, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau hit the bank with fines of $500 million each after they determined that the bank had set unfair mortgage interest rates and forced customers to sign up for unnecessary car insurance.
Traditional financial giants may try to argue against crypto until they turn blue, but the truth is that crypto offers better protection and more transparency – and more confidence – than do the banks.
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Credit card giants Visa and Mastercard have often been accused of price fixing by disgruntled merchants. Now, the firms are prepared to settle on a class action lawsuit, which looks set to cost them over $6.2 billion, Bloomberg reported.
Visa and Mastercard have agreed to come up with around $4.2 billion in cash, with $4.1 billion of that burden falling on Visa. Equity in Bank of America, Citigroup and JP Morgan Chase will also be offered in part payment of the settlement.
The total settlement is hugely significant, almost equivalent to the entire market cap of Bitcoin BCH. It concerns a case around card processing fees brought by merchants unhappy with the service they were receiving—including hidden, excessive fees merchants allege they were left with no option but to pay.
Merchants in the United States alone currently generate as much as $90 billion in transaction fees for Mastercard and Visa every year. The lawsuit, brought under antitrust laws, dates back to 2005, when allegations of price fixing first began to surface.
Now, with the credit card companies’ willingness to settle, it looks as though merchants could be set to recoup some of those fees they allege were unfairly drawn.
The case shows the difficulties merchants face in dealing with centralised payment systems. In the case of Mastercard and Visa, both firms turnover in excess of $12 billion per annum and have a virtual stranglehold on merchant payments by credit and debit card.
However, with cryptocurrencies like Bitcoin BCH increasingly being adopted by merchants and consumers, it looks like another way is possible. Transaction fees are lower for merchants that accepting payments through credit and debit cards, while transaction processing speeds and reliability are also favourable for commercial use.
At the same time, Bitcoin is convenient and flexible for customers, increasingly being seen as the cryptocurrency of choice for online payments.
Without the centralisation of Visa and Mastercard, there is no monopoly on transactions around Bitcoin BCH. This is proving attractive to merchants looking to break their reliance on the large corporate payment institutions while providing customers with a more functional way to pay.
While the multi-billion dollar settlement will be seen as a positive sign for the merchants affected, cryptocurrency—Bitcoin BCH in particular—remains the best option for those looking for trusted, decentralised merchant payments.
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