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Bitcoin beware: JPMorgan seeks patent for rival online payment system

Published time: December 12, 2013 11:42
AFP Photo / Timothy A. Clary

AFP Photo / Timothy A. Clary

As public enthusiasm continues to grow over bitcoin, the digital crypto-currency, JPMorgan Chase seeks to patent an online payment system that would allow digital wallets, as well as anonymity – the most attractive feature to internet users.

In an apparent effort to compete with bitcoin, the decentralized online currency that has taken the internet by storm, JPMorgan Chase, the largest American bank by assets, has patented its own online payment system.

According to a patent application filed August 5 with the US Patent and Trademark Office (UPTO), JPMorgan’s patent would give online users the ability to shop without the hassle of filling in a payment form with each purchase.

With what has been dubbed its ‘Internet Pay Anyone Account,’ users will be able to spend "web cash" that has a "real-time digital exchange of value".

Admitting that traditional credit cards will continue to dominate the internet “for at least the next five years,” JPMorgan said the consumer cost of using credit cards for many low-cost purchases is becoming too expensive for many consumers. At the same time, use of the bitcoin has helped online merchants trim costs and attract new customers.

Since January, the value of a single bitcoin, introduced in 2009, has skyrocketed from $13 to more than $1,000.

JPMorgan acknowledged the disadvantages of using traditional credit cards inside of a market that demands speed, security and, most importantly, low cost.

While credit and debit cards may continue to be a viable payment option for merchants selling relatively high ticket items over the internet, credit and debit cards are not economically viable for purchases of lower cost items,” the US banking giant admitted in its patent application. “For lower-cost items, the relatively high transaction processing fees plus the discount result in the transaction processing fee consuming a relatively high proportion of the total revenue generated by the product sale.

In an apparent nod to bitcoin, JPMorgan said the popularity of online shopping “is spawning a direct model in which manufacturers of products or services are able to deal directly with consumers.”

The patent application emphasized the rise of “intense price competition” among online manufacturers, who are facing “much tighter margins” to make a profit. The competition has forced merchants to find new ways of reducing payment processing costs for their customers.

JPMorgan pointed to intellectual products, such as “publications, music, video, software, games” that are more easily purchased over the Internet as opposed to “traditional physical (paper or disc) media.”

Higher bandwidth, together with the introduction of new technology to upload the intellectual products, points to robust growth in this segment of the online market. The changing dynamics of online shopping demands a “payment form that has a low cost.

"A new marketplace has emerged for low dollar, high volume, real-time payments with payment surety for both consumers and producers," the financial holding company writes in the application.

The system also allows for anonymity.

"The credit pushes can be made completely anonymously, with the recipient of the credit having no way to determine from where the credit originated," the according to the bank’s application.

Another feature of JPMorgan’s patented digital wallet is the security it provides to online shoppers, who will be able to store virtual money into accounts, which, like bitcoin, is secured through cryptography, thus guaranteeing no breaches of security in the transaction between consumer and manufacturer.

However, it was anonymity that led the FBI in October to shut down Silk Road, a website that specialized in illegal drugs. An FBI official told Forbes the agency confiscated 144,000 bitcoins, worth close to $28.5 million at current exchange rates.

The official declined to reveal how the bitcoin wallet was traced back to the owners of Silk Road.