How Mastercard, Goldman Sachs And Other TradFi Titans Are Using Blockchain To Rewire Global Finance

Mastercard chief executive Michael Miebach wants to use blockchain tech selectively for things like... [+] Jamel Toppin for Forbes

“There will always be new payment technology,” says Michael Miebach, chief executive of Mastercard, the world’s second-largest credit card company. “First there were cards using 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 came blockchain, and we said okay, what would that solve? There’s a whole set of real-life problems out there that blockchain can solve.”

In late January, the 55-year-old Miebach told analysts and shareholders that his company had surpassed 2 billion “tokenized” transactions per month, up 38% in a year, and that Mastercard was enabling digital payments in 110 countries. The big benefit? Less fraud.

Today, tokenization at Mastercard means replacing the 16-digit number on your plastic credit card with a supersecure unique digital record for every transaction, without ever leaving behind your identity in the form of a credit card number. It’s not yet on a blockchain, but Mastercard is currently working with banks and merchants to tokenize a variety of assets, including deposits, which will be tracked on multiple public and private blockchains.

“You can tokenize anything,” Miebach says. “I think we’re going to have a world where everything will be tokenized and will be passed around in a safe fashion.”

Mastercard is one of 22 financial companies that made Forbes’ 2023 Blockchain 50 list of billion-dollar companies putting distributed-ledger technology to real use. Mastercard is also a prototypical corporate middleman. It raked in $22 billion in revenue and $10 billion in profit last year from the fees it charges merchants to, essentially, help customers spend their own money. In other words, Mastercard is exactly the type of company that crypto zealots love to hate.

But it is trusted by millions of merchants worldwide. And in the wake of Web3’s never-ending barrage of scandals, scams and swindles, trust 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.

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BLOCK BOMBS

It’s been a tough year for crypto—and blockchain has not been spared. Here are some big company blockchain projects that have been shelved.

A.P. Moller-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 seaports. But achieving the necessary level of cooperation between competitors and countries proved impossible, so Maersk will shutter it this quarter.

Australian Securities Exchange (ASX)

After five years of trying to build a blockchain replacement for its aged settlement system, Australia’s primary stock exchange pulled the plug in November after Accenture found significant design flaws. ASX took a $170 million loss on the project.

Honeywell

The industrial conglomerate was using blockchain to digitize aircraft records and even had a marketplace for used aviation parts called GoDirect Trade. Development was halted as of November and staff working on the project have since left the company.

Silvergate Bank

The crypto-focused bank experienced a run related to the FTX blowout. Over the course of 2022, deposits shrank from $14.7 billion to $3.8 billion. Silvergate fired 40% of its staff and lost nearly a billion dollars. It also wrote down its 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 privacy and they trust they won’t be taken for a ride.”

Other “TradFi” CEOs are right alongside Miebach, beating the crypto drum. In December David Solomon, the CEO of Goldman Sachs, penned an opinion piece in the Wall Street Journal headlined “Blockchain Is Much More Than Crypto,” in which the boss of Wall Street’s most iconic firm cautioned 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-life problems out there that blockchain can solve.”

Big banks like Goldman have largely avoided directly investing in cryptocurrencies but have quietly been working with their underlying technology. “We see huge commercial opportunities,” says Mathew McDermott, head of digital assets at Goldman Sachs. In November, his 70-person team underwrote a €100 million bond offering for the European Investment Bank in conjunction with Santander and Société Générale. The process took just 60 seconds. Typically, a bond sale like this takes about five days.

“[There are] people who would like to continue to trade the crypto market, and we’re keen to [help] through derivatives or options,” McDermott adds. One strong piece of evidence pointing to the value of trust: In 2022, big unregulated crypto exchanges like Binance, Huobi and OKX saw volume fall by more than 25% through September, while CME, Chicago’s highly regulated futures trading exchange, saw increases of 62% in bitcoin futures and 80% in ethereum futures over the same period.

Likewise, Fidelity is seizing upon the crisis in crypto confidence by flooding Instagram feeds with advertisements for its soon-to-launch Fidelity Crypto. “Get on the early-access list to trade bitcoin and ethereum,” reads one promotion. “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 U.S. asset managers and provides back-office services to 19 Canadian crypto ETFs and mutual funds. Like David Solomon at Goldman, Mellon’s chief executive, Robin Vince, took to the newspapers to announce the seriousness of his bank’s crypto plans, writing a December article in the Financial Times entitled “Time for a Reset of the Crypto Opportunity.”

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 tech 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, chief executive of BlackRock—the world’s largest asset manager, with $8.6 trillion under management—at a DealBook conference in November. For now, BlackRock is mostly acting 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 investor and wealth management customers access to bitcoin and other cryptocurrencies through its Aladdin portfolio management software. It also holds $34 billion in Treasury bills as reserves for Circle’s U.S. dollar–backed stablecoin, USDC.

While established financial institutions are shrewdly stepping forward to supplant crypto startups, there are worries among crypto industry purists over the future of blockchain technology. One schism: Web3 evangelists love open-source, decentralized “public” blockchains. Big enterprises (and totalitarian governments) prefer “private” blockchains precisely because they offer more control.

That remains true even after some big 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 as of November 2022. Maersk and IBM scrapped their TradeLens global shipping supply chain blockchain in November after hiring 19 staffers 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 worth of assets, recently opened its $4 billion Health Care Strategic Growth Fund to distribution via Avalanche, a fast public blockchain that boasts 4,500 transactions per second (Ethereum can still handle only 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 in a safe fashion.”

In China, cryptocurrencies and crypto mining are illegal, but blockchain is an important part of President Xi Jinping’s Vision 2035 national development strategy. 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, is far outpacing development 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 system for transferring funds. It recently launched a giant distributed ledger for credit reports that lets bank subsidiaries share information while complying with government privacy regulations.

It has already used its blockchain to give $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, feature on this year’s Blockchain 50.

Mastercard’s Miebach thinks crypto’s latest woes might actually speed up adoption of the new technology. “You are going to get more mainstream players in and the regulators are going to show up to address the risks,” he says. “That’s a recipe for this to become a mainstream technology. I think [crypto’s] recent winter storm is going to help.