SWIFT is the world’s most important interbank messaging platform, and it has just published a report in which it announces the preliminary results of a technological project that seeks to implement the use of Distributed Ledger Technologies in payment processing and provision of liquidity solutions to its customers.
With more than 11,000 institutions connected via its technology in more than 200 countries, SWIFT is the most trusted international interbank payments intermediary. Virtually all international banking transactions go through SWIFT: it centralizes information, processes the transaction and ensures safe execution of the operation. But its technological design and the reality of today’s world (where payments must be made instantaneously and economically), requires a radical technological improvement or else it faces the risk of losing monopolistic control of the service it provides. This niche was leveraged by Ripple, a company based on the use of blockchain technologies to offer services (basically) similar to SWIFT, but with the benefits of using DLT. The success of this company has been so impressive that today its XRP token is the third token with the largest market cap of all cryptos, only surpassed by Bitcoin and Ethereum.
On December 17, 2015, on an official press release, SWIFT’s support and funding (alongside a group of financial institutions such as Wells Fargo, J. P Morgan, and the London Stock Exchange) for The Linux Foundation project was announced. The funding sought to strengthen opensource technologies, but also to provide technological solutions to improve the service model SWIFT offered to its customers. According to the information provided by a press release:
“The project will develop an enterprise-grade, open source distributed ledger framework and free developers to focus on building robust, industry-specific applications, platforms and hardware systems to support business transactions (…) SWIFT is delighted to support this industry-wide effort to advance distributed ledger technology,” said Craig Young, SWIFT’s Chief Technology Officer. “Cooperation and collaboration – hallmarks of the SWIFT cooperative – will be key to ensuring the scalability and adoption of this technology.”
Thanks to this alliance, the Hyperledger project was able to consolidate itself as a robust and reliable option in the world of blockchain technologies.
Subsequently, in 2016 SWIFT initiated studies to use Blockchain Technologies on its platform and with Ripple not yet too important, the research had no pressure to accelerate its pace:
“Our analysis has confirmed that DLTs have the potential to bring new opportunities and efficiencies to the financial industry with their key strengths including the ability to create:
- Trust in a disseminated system;
- Efficiency in broadcasting information;
- Complete traceability of transactions;
- Simplified reconciliation; and
- High resiliency.”
The reports were very optimistic, however, there were still some challenges to overcome that prevented its global implementation
By 2017 SWIFT announced that preliminary testings of its blockchain proof of concept (PoC) were to be carried out. The project is based on Hyperledger technology that they funded two years ago. The tests were “designed to validate whether the technology can help banks reconcile their international Nostro accounts in real time.” The banks that joined the efforts numbered 33 of the 11,000 customers. The potential was beginning to be explored, driven, among other things, by the increase and refinement of blockchain technologies (and a Ripple gaining confidence among the banking sector and with a value that went from $0.006 to $0.385 in 3 months)
“The potential business benefits ensuing from the PoC are clear,” says Damien Vanderveken, Head of R&D, SWIFTLab and UX at SWIFT. “If banks could manage their Nostro account liquidity in real time, it would allow them to accurately gauge how much money is required in each account at any given point, ultimately enabling them to free up significant funds for other investments.”
The results, as expected, were very positive, and on March 8, 2018, SWIFT published a report with the final results from its DLT proof of concept for Nostro reconciliation. A project that they qualify as “one of the largest and most ambitious proofs of concepts run with the emergent technology”.
The results were extremely positive and could point to a future migration of the platform to the blockchain:
“The PoC went extremely well, proving the fantastic progress that has been made with DLT and the Hyperledger fabric in particular,” said Damien Vanderveken, Head of Research and Development at SWIFT. The DLT sandbox enabled us to control access, to define and enforce user privileges, to physically segregate confidential data and store it only with the relevant parties while supporting a strong identity framework by linking all participants to their BIC, and having all keys signed by a SWIFT certification authority “.
The report concluded that it is still early to make a complete migration to blockchain technologies. The dimensions of the SWIFT system and the different characteristics of its customers mean that some details are yet to be resolved regarding governance, data control, legality, standardization, identity framework, security, reliability, and scalability. It may sound like a lot, but the progress made last year has managed to resolve more situations than the ones that are still unresolved today.
Blockchain technologies are certainly the future for both centralized and decentralized platforms. International banking still depends on the centralization of services, but soon people will be able to see the SWIFT system in the blockchain world.
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