Does Blockchain’s Popularity Mean The End Of SWIFT?

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Does Blockchain’s Popularity Mean The End Of SWIFT?

Blockchain, with its distributed ledger and capacity to facilitate transactions with low costs, presents a real threat to cross-border money transfer methods. And none of these systems is more vulnerable than SWIFT, a bank consortium that handles the majority of worldwide transactions. (Also see: ‘Zero Knowledge Proofs’ Could Increase Blockchain Adoption On Wall Street.)

SWIFT’s messaging technology allows interbank transactions to take place all over the globe. Cross-border money transfers are now a major element of the banking system, with a total value of $150 trillion in 2015. Cross-border transactions are also possible using blockchain technology, but in a decentralized form. This implies that banks are directly linked to one another on the same network, and transactions are authorized directly. (For further information, see How the SWIFT System Works.)

Recent SWIFT attacks have exacerbated the situation and jeopardized the network’s integrity. The conventional cross-border payments sector, according to investment bank Credit Suisse, is ready for upheaval. “Interbank payment systems like SWIFT are outdated, inflexible, sluggish, and more vulnerable to assaults at a time when banks are under immense pressure to save costs and secure client data from hackers, which blockchain might do,” the bank said earlier this year on its website.

The advent of other blockchain-based systems, like as Ripple, which already has more than 75 institutions as members, is not helping things. Large banks, such as JPMorgan Chase & Co. (JPM), have also created networks among themselves to build blockchain-based cross-border payment systems. (Also see JPMorgan’s Blockchain Money Transfer Project.)

SWIFT And Blockchain

Given the similarities in the technology of both payment systems, it would make sense for SWIFT to examine blockchain. Indeed, the messaging network has launched its own blockchain initiatives. The collaboration released a proof of concept in January to test real-time database reconciliation for cross-border payments; by August, the project had accomplished its goals. But there was a catch to their triumph. SWIFT’s R&DheadDamien Vanderveken told Coindesk that their approach would need a large infrastructure redesign for institutions that had previously invested in centralized systems. “The extent of automation of the participants determines the commercial value,” he said.

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The distinctions between SWIFT and blockchain were highlighted during two rival conferences conducted at the same time last week. Ripple arranged one of the conferences, while SWIFT organized the other. SWIFT CEO Gottfried Leibbrandt, according to sources, likened the present fervor for bitcoin, which is based on blockchain, to the 17th-century “Tulip bubble” hysteria and scarcely referenced the company’s own blockchain initiative. Satya Nadella, CEO of Microsoft Corp. (MSFT), corrected him by pushing the corporation to develop “useful” blockchain applications.

Does This Mean The End Of SWIFT?

To be fair, the proportion of payment-based communications in the SWIFT ecosystem has been falling while security and treasury transactions have increased.

However, the company’s SWIFT for Corporates product, which is used by banks to exchange secure communications regarding financial information, has grown rapidly, from 579 corporate entities in 2009 to 1,405 in 2014. SWIFT may be reinventing itself rather than becoming obsolete in a blockchain future, based on the success of its new product and an increase in income from other sources.

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