Swift proposes a blockchain roadmap

Translation: Prince Gong

Swift, a communications platform that links tens of thousands of banks, is preparing to up its game in interbank payment settlements by making them faster and more secure — a new roadmap that incorporates new technologies like blockchain.

Swift said the plan, which will be implemented in early 2016, will make banking "as fast as light".

Wim Raymaekers, global head of banking markets at Swift, said:

“We will see a change in interbank settlements, perhaps using blockchain technology to replace the corresponding accounts for bilateral transactions.”

He said that achieving nostro/vostro settlement between two cross-border accounts involves the messaging layer and the settlement layer.

Raymaekers explained,

“You have to upgrade as time goes by. It’s a strategic roadmap, but you can’t just rip out the old system and put in the new one. That’s not realistic. Banks have built-in compliance into their systems and you have to maintain that level of control.”

Wim Raymaekers , Global Head of Markets , Swift Bank

What is blockchain?

A blockchain can be thought of as a shared ledger of transactions and data entries, with each node in the system having a copy. It is updated and confirmed by the network, and the data is timestamped and placed in blocks. This shared data is linked by a chain in a cryptographic chain, which prevents data tampering and is easy to audit.

Many banks are currently leaning towards using private or permissioned blockchains, which can be developed and run in an untrustworthy environment, rather than using a fully open blockchain like Bitcoin. A consortium of banks and other financial institutions using a private blockchain would be able to verify transactions in compliance with legal regulations.

Such use cases can greatly improve efficiency and save costs for the financial system, such as reducing securities clearing time from the traditional three days to almost instantly.

Ripple

Swift has replaced many types of blockchain technology in its labs and has tried a variety of new technologies through its Innotribe Internet Finance Innovation Group. The distributed ledger technology provided by Ripple focuses on simplifying inter-bank transactions. And the technology was recently added to Microsoft Azure's "Blockchain-as-a-service".

Ripple provides a built-in ledger protocol (Interledger Protocol), which is a top-level cryptographic escrow system that allows funds to move between multiple ledgers with the help of intermediaries called connectors. Regarding Ripple, Raymaekers said:

“On top of that, you still need business rules, you still need payment information. It’s not a distributed ledger technology, at least not today.”

He pointed out that the payment protocol must be able to clearly know whose credit was used and when it was initiated, as well as a lot of information such as how much the handling fee was. This will require private and confidential information, which must be kept confidential - this is another problem of blockchain.

Facing marginalization

Swift has been threatened by these emerging financial technologies. Some blockchain startups and cooperative institutions have begun to propose new settlement standards. For example, the R3 blockchain alliance is already developing standards for interoperable settlement.

Just today, Russia’s largest bank, Sberbank, announced that it has joined the R3 alliance, which already has 30 major banks from around the world.

Raymaekers added:

“We will continue to develop new and better services, leveraging Swift’s Innotribe organization to further expand the fintech community, exploring payment systems that can implement payment tracking, using peer-to-peer messaging and blockchain technology.”

Gottfried Leibbrandt, CEO of Swift

Gottfried Leibbrandt, CEO of Swift, said:

“Interbank services within the industry enable millions of secure cross-border payment transactions every day; we are working hard to build on our strengths to enable banks to offer independent cross-border payment services, providing real benefits to end customers. This will be the most critical step in cross-border payments.