Swift’s $1.5 quadrillion network faces a blockchain test

Swift, the backbone of financial messaging, faces a tough question: Will blockchain technology replace the 53-year-old technology that the legacy banking system relies on?

With many blockchain-based infrastructures popping up, promising to be faster and cheaper for cross-border transfers, one could argue that this might be the case.

“As these blockchain rails get laid, there’s just no need for legacy Swift solutions anymore,” said Chris Maurice, CEO of Yellow Card, a U.S.-based stablecoin payments infrastructure provider.

However, Swift isn’t standing still. It officially rolled out its new blockchain ledger in July, providing banks with a shared layer for tokenized deposits issued on their own ledgers. HSBC and Standard Chartered just recently completed the first live cross-border transaction on this new ledger. The transaction gave the cooperative a foothold in the world of 24/7 tokenized payment technology.

While the scale of the transaction dwarfs Swift’s current processing power of more than 53 million financial messages a day for 11,500 financial institutions across more than 200 countries and territories, it highlights its prime advantage: the network effect.

According to Debo Sen, head of digital assets at Citi, blockchain technology may change the infrastructure beneath cross-border payments. Swift’s massive network could make it one of the best-positioned organizations to connect the new systems.

“If anybody can pull it off, it’s Swift because of the network effect it has,” Sen said. “Swift is well-positioned. They have 11,500 banks connected to them. They understand how the banks work. The banks are familiar and comfortable.”

The firm’s messaging system — a service estimated to have facilitated the movement of quadrillions of dollars since its inception in 1973 — does not itself hold or transfer customer funds. It sends the standardized instructions that allow banks to debit and credit accounts, often through chains of correspondent banks. It facilitated the transfer of an estimated $5 trillion daily, roughly $1.2 quadrillion to $1.5 quadrillion annually, of the total global payments market that McKinsey estimated at around $2 quadrillion.

While those processes can take one to five business days, depending on the banks, currencies and compliance checks involved, the actual payment instruction can reach a destination bank quickly. Jack Pouderoyen, head of digital asset strategy at Swift, said 75% do so within 10 minutes — even though the underlying transfer of funds can take longer depending on the banks, currencies and settlement systems involved.

Swift’s Pouderoyen said success looked like a world where technology became invisible. “End-users can move any regulated form of money, anytime and anywhere, without needing to think about the underlying technology,” he said.

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Source: cryptonews.net