SWIFT builds blockchain application to optimize global capital liquidity

Rage Comment : SWIFT has customers all over the world and a huge business volume. Therefore, technological advantages are of great significance to it. So more than a decade ago, they set up a working group composed of banking institutions to provide better customer service experience. Now they are more actively exploring global payment innovation based on blockchain, and are advancing step by step to achieve the ultimate goal. The current task is to use blockchain proof of concept to verify the current technology development route.

Translation: Annie_Xu

A platform that connects most of the world’s banking institutions is beginning to use blockchain applications to streamline cross-border payments.

SWIFT will integrate open source blockchain technology into its products to build a proof of concept that could one day replace bank nostro accounts filled with the world’s cash, if necessary.

If successful, blockchain applications could help realize Swift’s long-cherished dream of freeing up that cash for more profitable investments.

Wim Raymaekers, Director of Marketing for Banking Services, explains what the successful distributed ledger technology (DLT) trial means for customers.

Raymaekers said:

“We will use a DLT proof of concept to synchronize these databases, allowing banks to optimize global capital flows.”

Currently, 11,000 financial institutions in the Swift network use the platform's daily settlement data to monitor their respective accounts.

Maintaining these accounts accounts for a “significant portion of the cost of cross-border payments.” However, it is not clear how much of these costs blockchain could save.

"Our proof of concept (POC) aims to answer this question."

Swift hopes to reduce the costs of maintaining and operating independent databases for members of the interbank platform, freeing up funds for other investments.

The experimental project appears to be just one part of a larger set of blockchain solutions.

For example, a blockchain POC was designed using the Monax database in the early days to test the potential advantages and feasibility of transferring ISO 20022 to the blockchain.

This POC will utilize the open source Hyperledger codebase.

This POC will also use a private chain with specific user profiles and strict data control, and only invited members can participate. Last year, the blockchain alliance R3CEV and its member institutions also tested Ripple's native asset XRP for this project.

In the Swift project, although only authorized institutions can participate in this POC, Swift's identity management platform and public key infrastructure (PKI) will be integrated; these two are security architectures based on cryptographic verification of digital signatures.

Wim Raymaekers

Raymaekers said:

“This project is about exploring how to use the technology, but it’s also important to know what information is put into the ledger.”

Blockchain is not the only solution

Raymaekers repeatedly stressed that Swift is already helping customers solve these problems using more traditional technologies.

In 2003, Swift established a working group composed of banking institutions and has since led the development of a decentralized information exchange model between banks based on blockchain.

These early Swift projects have now been integrated into the intraday liquidity model project, providing liquidity indicators for its member database; however, projects to improve interbank nostro account management are still in progress.

In its 2012 report, Raymaekers found that the number of accounts in the Asia-Pacific region grew by 4% between 2005 and 2011, while the top 80 payment banks among Swift members had reduced their current accounts in Europe and the Americas by 16% and 11% respectively during that period.

The reason is the concerns raised after the 2007 financial crisis, and Swift calls this adjustment "Banking 3.0".

The current blockchain project belongs to Swift’s Global Payments Innovation initiative (GPI).

Global Payment Innovation

GPI is also just one part of Swift’s efforts to simplify global cross-border payments.

The first version is expected to be completed in 2017, with 100 banking institutions participating. Swift aims to simplify international payment instructions.

Raymaekers said much of the goal has been achieved using traditional techniques.

However, only half of the GPI goal was achieved.

The project also hopes to simplify the reconciliation process of current accounts. Raymaekers believes that it can be a good use case for DLT and hopes that this POC project can prove this conjecture.

“A big problem is reconciling the underlying databases between banks. So our GPI project is trying to synchronize these databases using DLT.”