As Visa cards are accepted worldwide, it's not a surprise that in 2018 alone the company moved $11.2 trillion over its payment rails across more than 200 countries, for all kinds of transactions from buying clothes to cars. However, Visa is looking at an even bigger market: cross-border, business-to-business (B2B) transactions, with banks transferring money for their corporate customers. This market is worth $125 trillion, and Visa wants to use distributed ledger technology (DLT) to confirm transactions by multiple computers on a network before it can be considered final. Using DLT will make these payments quicker, less expensive, and more transparent
Currently, the majority of cross-border payments are conducted via the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a Belgian organization founded in 1973 and had 11,000 financial institutions as members. However, its legacy systems come with inefficiencies. For example, most banks are not connected directly to each other, so a payment that comes from Kansas City and heading for Nairobi might have to stop at banks in New York and London along the way, and each bank takes its fee. It's also hard to monitor the transfer's progress, its cost, or the foreign exchange rate you'll receive.
SWIFT introduced a new service known as GPI in 2017, to make transactions faster and boost transparency. Now, almost all transactions are done within 24 hours, according to Harry Newman, the head of banking at SWIFT. To date, 3,500 banks h ave signed up for GPI, and they move $300 billion per day, which is approximately 50% of SWIFT's total daily volume.
Visa has also launched a new B2B Connect product to help make transactions faster and more transparent, according to Kevin Phalen, head of Visa's global business solutions. This newly launched distributed-ledger software makes direct bank connections easier. Moreover, financial institutions can see payment fees right away. Transactions are also settled in 24 or 48 hours. However, Visa isn't leveraging the famous credit card rails it has spent decades building and maintaining because the B2B Connect rails are new although the company is leveraging its experience when it comes to complex payments, cybersecurity, and compliance.
Phalen and his team developed Visa B2B Connect using distributed ledger technology since it offers more transparency and traceability than a regular database. Visa used Hyperledger Fabric, blockchain software partly created by IBM and hosted by Linux that took two years to roll out. However, Visa's product isn't decentralized like Bitcoin or Ethereum because Visa exerts complete control over it.
Instead, Visa B2B Connect is aimed at making high-value B2B transactions for approximately $15,000 and up, which represents about a 10% chunk of the $125 trillion cross-border markets, according to Phalen. Visa is also collaborating with FIS, a payment processor and financial technology provider from Jacksonville that works with over 20,000 financial institutions. That'll give Visa access to FIS' host of bank clients, who can opt to use B2B Connect for payments if they would like.