How Mastercard, Goldman Sachs and Other “TradFi” Titans Are Using Blockchain to Rewire Global Finance
Crypto is in crisis, but many of the world’s largest financial institutions are still betting on the underlying technology as the best way to build trust with customers – and with each other.
Of Nina Bambysheva and Michael del Castillo
“TThere will always be new payment technology here, says Michael Miebach, CEO of Mastercard, the world’s second largest payment company. “At first there were cards that used ISO 8583 [ISO numbers refer to international standards] messaging technology, which is 50 years old, then real-time payments became real with ISO 20022. And then blockchain came along, and we said okay, what would that solve? There is a whole set of real-world problems out there that blockchain can solve.”
In late January, the 55-year-old Miebach told analysts and shareholders that his company had passed 2 billion “tokenized” transactions per month, up 38% in a year, and that Mastercard was enabling digital payments in 110 countries. The big advantage? Less fraud.
Today, tokenization at Mastercard means replacing the 16-digit number on your plastic credit card with a super-secure, unique digital record for each transaction, without leaving your identity behind in the form of a credit card number. It also allows customers to use digital wallets. It is not yet on a blockchain, but Mastercard is currently working with banks and merchants to tokenize a range of assets, including deposits, which will be tracked on multiple public and private blockchains.
“You can tokenize anything,” says Miebach. “I think we’re going to have a world where everything will be tokenized and will be passed around securely.”
Mastercard is one of 22 financial companies that have created Forbes’ 2023 Blockchain 50 List of Billionaire Companies Taking Distributed Ledger Technology to Real Use. Mastercard is also a prototypical intermediary for businesses. It raked in $22 billion in revenue and $10 billion in profits last year from the fees it charges financial institutions to help customers spend their own money. In other words, Mastercard is exactly the kind of company that crypto zealots love to hate.
But it is trusted by millions of sellers worldwide. And in the wake of Web3’s never-ending barrage of scandals, scams and scams, confidence is exactly what the sector needs. Smelling opportunity, blue chip financial giants including BlackRock, JPMorgan and Fidelity have become some of the biggest champions of the new technology.
BLOCK BOMBS
It’s been a tough year for crypto – and blockchain has not been spared. Here are some major corporate blockchain projects that have been shelved.
AP Møller-Maersk
TradeLens, the blockchain platform Maersk co-developed with IBM, was launched in 2018 to cut time and paperwork out of tracking containers as they move through global ports. But achieving the required level of cooperation between competitors and countries proved impossible, so Maersk will close it this quarter.
Australian Securities Exchange (ASX)
After five years of trying to build a blockchain replacement for its old settlement system, Australia’s primary exchange pulled the plug in November after Accenture found significant design flaws. The ASX took a $170 million loss on the project.
Honeywell
The industrial conglomerate used blockchain to digitize flight records and even had a marketplace for used aircraft parts called GoDirect Trade. Development was halted in November and employees working on the project have since left the company.
Silvergate Bank
The crypto-focused bank experienced a run related to the FTX blowout. During 2022, deposits shrank from $14.7 billion to $3.8 billion. Silvergate fired 40% of its employees and lost nearly a billion dollars. It also wrote down the purchase of Meta’s failed Diem cryptocurrency project.
“What do you need for blockchain to scale?” asks Miebach, whose company launched 35 new crypto-friendly debit and credit cards last year. “It scaled for traditional payments because people trust experience, they trust data protection and they trust not to be taken for a ride.”
Other “TradFi” bosses are right next to Miebach, beating the crypto drum. In December, David Solomon, CEO of Goldman Sachs, wrote an opinion piece in The Wall Street Journal headlined “Blockchain is much more than crypto,” in which the head of Wall Street’s most iconic firm warned against dismissing the technology in the wake of the Sam Bankman-Fried/FTX fiasco. The crux of his argument? “Under the guidance of a regulated financial institution like ours, blockchain innovations can flourish.”
“There’s a whole set of real-world problems out there that blockchain can solve.”
Big banks like Goldman have largely avoided investing directly in cryptocurrencies, but have been quietly working on their underlying technology. “We see huge commercial opportunities,” says Mathew McDermott, head of digital assets at Goldman Sachs. In November, his 70-strong team underwrote a €100 million bond offering for the European Investment Bank in partnership with Santander and Société Générale. The process took only 60 seconds. Typically, a bond sale like this takes about five days.
“[There are] people who want to continue trading the crypto market, and we care about that [help] through derivatives or options,” adds McDermott. Strong evidence pointing to the value of trust: In 2022, major unregulated crypto exchanges such as Binance, Huobi and OKX saw volume drop by more than 25% through September, while CME, Chicago’s highly regulated futures exchange, saw a 62% increase in bitcoin futures and 80% in ethereum futures in the same period.
Likewise, Fidelity is seizing on the crisis in crypto confidence by flooding Instagram feeds with ads for its soon-to-be-launched Fidelity Crypto. “Get on the early access list to trade bitcoin and ethereum,” one campaign says. “Start with the names you know, invest with a name you can trust.”
The nation’s oldest bank, 238-year-old BNY Mellon, already offers digital asset custody for US asset managers and provides back-office services to 19 Canadian crypto ETFs and mutual funds. Like David Solomon at Goldman, Mellon’s CEO Robin Vince took to the newspapers to announce the seriousness of the bank’s crypto plans, writing a December op-ed in Financial Times titled “Time for a Crypto Opportunity Reset.”
JPMorgan’s 66-year-old CEO, Jamie Dimon, called cryptocurrencies “decentralized Ponzi schemes” last fall, but his bankers have been hard at work using blockchain technology to execute $550 billion in repurchase agreements since 2020.
“There will always be new payment technology.”
“The next generation for markets, the next generation for securities, will be tokenization,” insisted Larry Fink, CEO of BlackRock — the world’s largest asset manager, with $8.6 trillion under management — at a DealBook conference in November. Currently, BlackRock functions mostly as a service provider for a select few so-called “crypto-native” companies. It has partnered with Coinbase to offer BlackRock’s thousands of institutional investors and wealth management clients access to bitcoin and other cryptocurrencies through its Aladdin portfolio management software. It also has $34 billion in treasury bills as reserves for Circle’s US dollar-backed stablecoin, USDC.
While established financial institutions are wisely moving to replace crypto startups, there are concerns among crypto industry purists about the future of blockchain technology. One schism: Web3 evangelists love open source, decentralized “public” blockchains. Big business (and totalitarian governments) prefer “private” blockchains precisely because they offer more control.
That remains true even after some large private blockchain projects failed spectacularly. In 2020, former Blockchain 50 member Honeywell began using private blockchain Hyperledger Fabric for buying and selling used aerospace parts. Development was halted from November 2022. Maersk and IBM scrapped their TradeLens global shipping supply chain blockchain in November after hiring 19 employees and spending more than four years on the project.
Public blockchains can offer advantages in terms of speed and cost. Private equity pioneer KKR, whose funds manage $496 billion in assets, recently opened its $4 billion Health Care Strategic Growth Fund for distribution via Avalanche, a fast public blockchain that boasts 4,500 transactions per second (Ethereum can still only handle 15). Other Avalanche users include CME Group, payments company FIS and Mastercard.
“I think we’re going to have a world where everything will be tokenized and will be passed around securely.”
In China, cryptocurrencies and crypto-mining are illegal, but blockchain is an important part of President Xi Jinping’s national development strategy Vision 2035. None of China’s sanctioned blockchains are public. China’s blockchain technology base, including its Blockchain-based Service Network (BSN), which has been described as a digital silk road connecting (and monitoring) multiple blockchains, far outpaces developments in the United States.
Two years ago, Blockchain 50 member China Construction Bank built a platform that cuts out Swift, the most widely used interbank fund transfer system. It recently launched a giant distributed ledger for credit reports that allows bank subsidiaries to share information while complying with government privacy regulations. It has already used its blockchain to provide $4.2 billion in credit to 2 million customers and hopes to reach 700 million people by mid-2025. In addition to China Construction Bank, five Chinese companies, including Tencent, WeBank and Alibaba’s Ant Group, participating in this year’s Blockchain 50.
Mastercard’s Miebach believes crypto’s recent troubles may actually accelerate the adoption of the new technology. “You’re going to get more mainstream players coming in and the regulators are going to step up to address the risk,” he says. “There is a recipe for this to become a mainstream technology. I think [crypto’s] the last winter storm is going to help.
Editor’s note: The story was updated on February 7 to reflect that tokenization at Mastercard extends to digital wallets, not just the physical cards; change the description of the company and how it generates revenue.
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