JPMorgan and Siemens have launched a first blockchain-based programmable payment. At its heart is the idea of conditionality: teaching a bank account to act for itself based on some clear parameters.

“If you look at bank accounts today, they have some programmable capabilities in the form of standing orders,” explains Naveen Mallela, global head of coin systems at Onyx by JPMorgan.

“You can set instructions for a direct-debit capability to run on particular days of the month, but that’s about it.”

Banking hasn’t advanced for beyond that, in terms of rules-based systems, for decades.

“What we’re looking to do with programmable payments is create a more expressive rule set on what you can do with your bank account, to enable more conditionality,” Mallela adds.

Think of it in basic programmable terms: if X happens, then do Y. If this happens, then do that. It lends itself in particular to dynamic funding – the ability to specify a range of rules for funding a bank account in a dynamic manner in case of shortfalls – and event-based pay-outs.

“You have the ability to program a range of conditions, based upon which you can execute actions,” Mallela says.

An example would be driven cash concentration.

“If you think about how a large corporate multi-national company manages cash, it tends to be end-of-day sweeps, moving money from one location to another,” Mallela says. “What we do is dynamically look at balances across any point of time and commit rules where, if there is a shortfall in one part of the world, the program corrects it.”

What makes blockchain interesting in this context is the ability not to have a separation of rules and accounts, but to tie them in a native manner so the rules are together

Naveen Mallela, Onyx by JPMorgan

The same approach can be applied to a range of events, such as a margin call, delivery of assets or goods, and fulfilment of contractual obligations. It can trigger processes based on particular movements in FX rates.

JPMorgan is offering programmable payments to its payments clients – corporates, financial institutions and asset managers, rather than retail. And the system is interesting because it is a use case suited very well to blockchain.

Blockchain technology is the ideal infrastructure for programmable payments because of its use as a mechanism for integration of different rules and accounts, which makes it perfect for dynamic direct debits and multi-party escrow accounts.

“What makes blockchain interesting in this context is the ability not to have a separation of rules and accounts, but to tie them in a native manner so the rules are together,” Mallela says.

As always, a use case is one thing, widespread utility quite another. Programmable payments are being offered as a new feature for blockchain-based accounts on the JPM Coin system. Siemens executed the first payment of its kind on November 6, and in late November JPMorgan said FedEx and Cargill were planning to go live in the coming weeks.

They use a new online payment portal on the JPM Access system, and ultimately form part of the Onyx by JPMorgan initiative, which has built the first blockchain-based platform for wholesale payments transactions.

It seems to be a useful coming together of blockchain technology and a genuine business-improving outcome, rather than a solution in search of a problem, as is so frequently the case. The key will be whether enough clients find it sufficiently useful to start to apply it at scale.