Five years after its debut, SWIFT, the global system used by banks to manage cross-border payments, is taking a fresh look at blockchain technology.
This time, the Society for Worldwide Interbank Financial Telecommunication is seeking to expedite the transmission of data on events such as corporate actions, dividend payments, exchange offers and mergers that affect investors and capital flows around the world. Current methods involve data passing through various intermediaries before reaching users such as asset managers, brokers and investment custodians, and the data can be contradictory or erroneous. End users must manually sort, compare, and reconcile data.
Blockchain may do better. A hallmark of the technology is that blockchains are immutable ledgers, a key advantage in this case is that they operate through a consensus mechanism that requires a network of participants to agree on the definition of each data item Consistent. Essentially, this means that the blockchain verifies data before registering it.
Leading financial institutions such as Citigroup
“Innovative and emerging technologies, including blockchain and distributed ledger technology, are really interesting for us,” said Tom Zschach, chief innovation officer at SWIFT. “We’re always looking for ways to validate the technology and deliver on promises.”
The pilot will use an assembly platform from enterprise technology company Symbiont. Business behavior data will be communicated using the SWIFT network, converted by SWIFT into a single format, and then uploaded to Symbiont’s blockchain. Once there, Symbiont’s blockchain will compare the information and create a record to share. When using blockchain to create a single record, the aim is to reduce manual review of data, saving time and money.
“What this solution allows us to do is take all the data, use smart contracts to normalize it and compare it internally, instead of forcing users to coordinate. You get a golden record,” said Mark Smith, CEO of Symbiont . “One of the great values of blockchain technology is that you have an immutable ledger, and you have the provenance of that information.”
Founded in 1973, SWIFT is a not-for-profit organisation with 11,000 members of financial institutions worldwide. The organization provides the infrastructure for interbank communications and facilitates $1.5 trillion worth of payments every day. The network is especially important for facilitating cross-border payments: it transmits information between banks in different countries, informing credit or debit accounts. While providing critical payments and messaging infrastructure, SWIFT has been criticized for being slow and costly for its connected correspondent banking network.
SWIFT’s blunder attracts challengers from the crypto world: Ripple pitches a faster, cheaper cross-border payments system with its token XRP; Meta tries to break in with its stablecoin Libra; central banks around the world work on their own numbers Currencies as a potential solution to inefficient cross-border payments. SWIFT itself has previously embraced blockchain as a potential solution to the inefficiencies in the world of interbank communications.
In 2017, SWIFT partnered with the Hyperledger Fabric blockchain to investigate whether its technology could help banks free up cash stored in overfunded reserve accounts around the world, which are maintained to ensure cross-border payments can be executed. The hope is that blockchain can improve visibility into these overseas accounts so that banks can reduce them without risking payment delays.FuGuo bank
World Financial Center
The pilot announced this week will be tested with a small group of participants and will provide additional feedback at the end of the month.
“We do see these as R&D projects at this point, and the great thing about innovation is that it doesn’t always have to work,” Zschach said. “It’s really about our ability to solve real problems that exist — in this case, it’s very specific to custodians and asset managers.”