The cross-border payments incumbent is piloting a new system to fight off those that seek to take the crown.
In an attempt to stave of challenges from blockchain-based enterprises such as the Ripplenet system and JP Morgan’s Interbank Information Network, as well as a host of other fintech newcomers looking to steal its customers, the Swift has announced plans to pilot a scheme that will reduce some of the major delays and cost incurring problems its operation currently throws up.
The Swift network, now owned by a consortium of 2,500 banks, was first created in 1973 as a solution to the problem of sending money between different banks across borders – and today handles something in the region of $200bn worth of transfers everyday. Now, according to The Financial Times (sub required) the team behind the network is looking to provide a tech based solution to help with some of the 10% of transactions that are encumbered by clerical and recording errors.
The inter-bank communication platform it is proposing, will seek to treat the same pain point that has been targeted by Ripple’s long-established xVia system – now part of its wider Ripplenet offering – and more recently by a blockchain based clarification system proposed by JP Morgan, the trial of which is being undertaken with the backing of around 130 banks (up from the 75 we initially reported). However, in contrast to both of those solution, Swift is not seeking to leverage a blockchain or distributed ledger that can be accessed and updated by users as solution to its problems. Instead it will seek to create a pre-validation system using an application programming interface (API), that allows banks to bilaterally access each other’s data in advance of a transfer to check account details and other necessary parameters are valid and in place before a transfer is attempted.
As Luc Meurant, chief marketing officer of Swift told The FT, instead of offering the opportunity for parties to edit transactions when errors occur – and recording those changes to a ledger all can access, Swift’s more traditional system will try to “anticipate as many of those issues as possible (with prevalidation) so payments can be processed faster.”
Ripple has, on several occasions recently taken very deliberate aim at the SWIFT payments system and voiced its intention to compete with Swift directly in the cross-border payments space. In an interview with Bloomberg TV last month, the blockchain payments company’s CEO, Brad Garlinghouse opined that “the technologies that banks use today, that SWIFT developed decades ago, really hasn’t evolved or kept up with the market” and reckoned that what Ripple was doing with its XRP-based Ripplenet services, was “in fact, taking over SWIFT”.
While JP Morgan’s IIN system – which has Societe General and Santander among its many participants – is more of a direct competitor to Swift’s proposed system, it only really challenges the transfer and validation part of Ripple’s Ripplenet system, known as xVia.
Ripplenet also possesses a liquidity platform, known as xRapid, which utilises the cryptocurrency Ripple created, XRP, to transfer funds digitally – leveraging exchanges in specific territories as liquidity providers, meaning banks and other companies do not have to source liquidity for themselves when using it. So, while Ripple will no doubt highlight that it is ‘ahead’ of Swift in modernising the process, should the incumbent’s system successfully mitigate one of the distinct disadvantages of the way it currently works, it will then fall on its creators convince potential customers that trading the traditional fiat system for crypto-based cross-border transfer option is the way to go.
While Ripplenet undoubtedly has gained traction, certainly outside of the Northern European/North America nexus of financial trade, it has yet lure a truly significant slice of Swift’s trade away from the well established, if somewhat dated, system. Swift’s move could make that difficult sell somewhat harder.
Ironically, in what amounts to a hedge against its own system, JP Morgan is now one of the banks signed up to to the Swift pre-validation trial. If nothing else, this highlights just how uncertain even the key players in this sector are regarding exactly which technology is the best way forward, and who has the edge.