Visa announced in a blog post that it will partner with blockchain-based remittance provider BTL Group Ltd. to create a cross-border payment settlement program. This project could signal the beginning of an “arms race” to create blockchain platforms for payment settlement between international financial companies.

The Visa Europe Collab will run the program using a blockchain platform called Interbit to settle transfers between banks. Hendrik Kleinsmiede, the co-founder of the Visa Europe Collab, hopes that this platform could “reduce the friction of domestic and cross boarder transfers” and reduce costs, the time to settle transactions and credit risk.

Visa’s announcement comes a week after four of the largest banks in the world announced a similar effort. The banks will use ICAP and the technology developer Clearmatics to develop a new, blockchain-based digital currency to help the banks settle financial trades.

The Financial Times remarked that Visa’s program could represent a challenge to the Swift interbank payment system. Swift is also reportedly exploring blockchain technology.

These new programs for blockchain-based payment settlement raise a number of compliance questions.

A regulated financial institution must consider the legal and reputational risks when implementing any new transaction system. For example, financial institutions must consider how suspicious transactions will be flagged. Many institutions are required to complete suspicious transaction activity reports to meet compliance obligations in a number of countries, including the United States.

Additionally, it is not clear whether the blockchain-based settlement transactions will be tied to the individual account holders at the institutions, an important consideration for “know-your-customer” and anti-money laundering safeguards. Will account information be embedded in the blockchain transactions or otherwise confirmed by the member institutions in the program?

Visa’s willingness to invest in a pilot program using blockchain technology may lead to other uses of blockchain in the future. An interbank settlement system could act as a “proof of concept” for blockchain-based technology, and give Visa comfort to launch a blockchain-based consumer payments program in the future.

Stay tuned to see what Visa does next…