Currently, the SWIFT network facilitates vast numbers of global interbank transfers through its messaging protocol, crucial for the modern banking system, which saw $150 trillion in cross-border transactions in 2015. Blockchain technology, on the other hand, offers an alternative by performing these international transfers in a decentralized manner, connecting banks directly on a shared network where transactions get direct approval.
The ability of blockchain technology to handle transactions at minimal costs with its distributed ledger raises questions about the future role of traditional systems such as SWIFT.
Faced with the technological commonalities, SWIFT has embarked on exploring blockchain potential. The messaging consortium launched its own blockchain initiatives, announcing a proof of concept in January to facilitate real-time cross-border payment reconciliation. By August, their pilot project had achieved its goals, though not without challenges. As noted by Damien Vanderveken, SWIFT’s R&D head, banks would face substantial infrastructure updates to transition from existing centralized systems, with business value hinging on automation levels.
The advent of blockchain-based competitors like Ripple, with a membership exceeding 75 banks, is further complicating the landscape. Prominent financial institutions, including JPMorgan Chase & Co., are exploring these emergent alternatives.
Conversely, SWIFT’s offering, SWIFT for Corporates, designed for banks to securely exchange financial information, has maintained use despite a shift in transaction types.
Notably, the proportion of payments-focused messages within the SWIFT system has been dwindling, while security and treasury-related communications are on the rise.
The disparity between SWIFT and blockchain became evident at two concurrent conferences held last week, one hosted by Ripple and the other by SWIFT itself. There, Ripple encouraged the development of practical blockchain applications.