Insight & Analysis

With conditions attached: programmable money becomes reality

Published: Nov 2023

The ability to customise and set conditions with digital payments has moved from the theoretical to the practical, with the launch of programmable payments and Siemens being the first multinational to take advantage of the feature.

Person holding coin which represents stablecoin

Almost any payment comes with conditions attached, although this is usually a mental exercise held in the brain and then conducted manually to check, access and amend in a system. ‘If I’m away on holiday, I’ll have to have more of a buffer sitting in the account’, or ‘if the goods haven’t arrived and been checked, I’m not going to pay for them’, or ‘if my current account goes into the red, take the shortfall from this other account’, are typical for anyone managing money, whether in a personal capacity or as treasurer of a large multinational.

Now, in the era of blockchain, digital payments and stablecoins, it is possible for treasurers to set up the conditions for their transactions, in what J.P. Morgan describes as ‘if this then that’ programmable payments.

J.P. Morgan announced that in early November, Siemens was the first to use such programming using its JPM Coin, a watershed moment marking how corporates will now be able adapt digital money to suit their treasury, and business, needs.

With programmable money, rules can be set up and automated, to save the time and effort needed to check whether certain conditions have been met. For example, margin calls, interest payments or arrival of goods can all be automated and linked to the payment being authorised.

Siemens has already piloted the technology with J.P. Morgan, in a proof of concept announced back in December 2021. At the time, Heiko Nix, Head of Cash Management and Payments, Siemens AG, said: “This new technology is one of the foundations for developing a real-time treasury at Siemens. In today’s fast changing environment, speed is critical for a focused technology company like ours, as new digital technologies and business models like pay-per-use or subscriptions models enter the market in ever-shorter cycles. These business models require a high degree of automation as we expect a significantly higher number of payments with much lower amounts at the same time, especially when it comes to micropayments. To manage this efficiently in the future, we are working with J.P. Morgan to build the financial infrastructure and digital capabilities for Siemens already today.”

And now that programmable payments have moved beyond the trial stage and into reality, FedEx and Cargill are expected to follow soon in Siemens footsteps. When Siemens made its first official programmable payment with JPM Coin, Siemens’ Group Treasurer Peter Rathgeb said, “Advantages and features from the crypto world are now available for fiat currencies by J.P. Morgan’s provision of 24×7 blockchain-based bank accounts, combined with programmability. This will take Siemens to the next level of automation, not only to optimise the use of working capital but also to enable data-driven digital business models and support the scalability of our Siemens business from the treasury side.”

This ability to programme the payments is a new feature for J.P. Morgan’s own digital currency. The stablecoin, JPM Coin, was introduced in 2019 and is powered by Onyx, the bank’s blockchain platform. It is linked 1:1 to the US dollar – ie one JPM Coin is equivalent to one fiat US dollar that is held in reserve. US dollars are exchanged for JPM Coin and then users can transfer the J.P. Morgan digital money between their accounts, and other J.P. Morgan account holders who are set up to receive JPM Coin. This is like an internal money transfer network within J.P. Morgan’s system and is much quicker because it is powered by blockchain. It also bypasses the need to use the traditional correspondent banking network to send money internationally, if the sender and recipient have accounts with J.P. Morgan.

This is just one use of programmable money, and other formulations are possible with digital money that could also be issued by central banks, e-money institutions, or corporates – ie not just commercial banks – which were previously reported by Treasury Today.

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