SWIFT strikes back and proves its own obsolescence. Image: Shutterstock

When SWIFT first announced its Global Payments Initiative (GPI), Ripple took the opportunity to highlight the ways SWIFT has failed to innovate, and how proposed changes to their messaging system do not meet the growing demands for global payments. The banking world took notice, powering Ripple’s momentum as we moved beyond experimentation with distributed ledger technology (DLT) and into commercial production with leading banks.

With its most recent announcement, SWIFT has taken notice as well, and expressed interest in exploring the use of DLT as part of a proof of concept within the GPI initiative. The empire is striking back, if you will.

At Ripple, we applaud this new development as it further validates what our customers have been telling us: they need a way to make cross-border payments truly efficient and open new doors.  

Yet, the devil is in the details.

In a recent interview with Coindesk, SWIFT Head of Banking Markets Wim Raymaekers assured the banking world that “SWIFT is already solving its customers’ problems using more traditional, existing technology,” while also insisting that a reason SWIFT is testing distributed ledgers is to reduce a “significant portion of the cost of making cross-border payments.” If this contradiction seems confusing, that’s because it is.

While the details of their plans are limited, here is what we have gleaned thus far:

Using SWIFT’s POC-stage distributed ledger technology, banks will maintain their nostro accounts as they do today – the only difference is, these account balances will be reflected in real-time on the distributed ledger, marginally improving the painful reconciliation effort banks face today. Much like the rest of GPI, this solution iterates minutely on what SWIFT does today. In essence, it’s a private SWIFT blockchain that will track nostro balances and cut out the necessity for constant reconciliation efforts.  

In our view, it doesn’t solve the real problems that banks face today:

  • Multiple bilateral relationships: Ripple is committed to helping banks reduce inefficiencies and costs associated with the management and maintenance of many bilateral relationships – which is necessary when sending payments through SWIFT. This new development does not solve for this.  
  • Payment pre-validation and fee pre-disclosure: Ripple’s settlement solution uses bidirectional messaging to dynamically exchange payment information, fees, rates, and status tracking information. SWIFT’s core messaging protocol still flows in one direction, creating opacity, additional costs, delays, and risks at every stop.
  • Interoperability and scalability: ILP is designed to provide interoperability across banks and non-banks at the scale necessary to process the transaction volume expected in the future. SWIFT is a closed interbank network and the usage of a private blockchain means that there will be a global transaction limit.
  • Liquidity management: Ripple enables banks to source liquidity from a marketplace of third party liquidity providers or use XRP as a bridge asset to send cross-border payments. On the other hand, SWIFT requires banks to use their own liquidity in fiat currency.

As the largest and strongest advocate for using DLT for cross-border payments, we are delighted that SWIFT’s 40-year old empire is finally embracing the benefits. But in reality, it’s an experiment with interesting patchwork over an antiquated system.  

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