Bank transaction intermediary SWIFT announced on June 24 that if its current proof-of-concept test is successful, it will incorporate R3’s Corda enterprise distributed ledger technology (DLT) into its new high-speed payment confirmation platform, Global Payments Innovation (gpi).
By incorporating DLT—the technology blockchain is based on—SWIFT provides financial institutions that want to use cryptocurrency the ability to do so. It will also put a cryptocurrency on a well-trusted financial platform. That’s something SWIFT emphasized in its announcement. “There is no point having a fast but unreliable payments system, or risking trust for innovation’s sake,” it said, adding “[a]s payments move faster, fraudulent pay-outs can be made sooner.”
SWIFT also incorporates strong and tested know your customer (KYC) and anti-money laundering (AML) technology. That became far more important this week as the powerful inter-government Financial Action Task Force (FATF) announced rules that will soon require cryptocurrency transmitters to identify customers and monitor transactions for suspicious activity just like banks do.
By linking to gpi, companies using R3’s Corda Settler will be able to authorize and settle payments through their banks, and receive credit confirmations when the payments are finalized. Corda Settler was designed to work with any financial payments platform.
“SWIFT gpi has rapidly become the new standard to settle payments right across the world,” said David Rutter, CEO of R3. “All the blockchain applications running on Corda will thus benefit from the fast, secure, and transparent settlement provided through the SWIFT gpi banks.”
Nearly all interbank transactions around the world run through SWIFT, which is a secure messaging platform enabling banks to confirm that funds being sent and received are accurate and intentional. Created in the ‘70s, more than 10,000 global banks use SWIFT, and its service had not improved much since then, taking two to three days to finalize—and charging a substantial fee in the process.
That began to change several years ago, when the promise of secure, blockchain-based financial transactions taking seconds and costing as little as fractions of a penny became clear.
SWIFT’s response was gpi, a platform designed to bring payment settlements up to modern speeds. Launched in 2017, 56% of all SWIFT transactions have migrated to gpi, accounting for more than $300 billion daily as of January. Half of that was credited to customer accounts within 30 minutes, it said.
Cost is likely to remain one of blockchain’s biggest selling points against SWIFT gpi. On June 26, Binance CEO Changpeng “CZ” Zhao announced that his company had transferred $1.2 billion in binance coin (BNB) between cold wallets for a transaction fee of $0.0015.
And the speed was far better than SWIFT gpi, with the Binance transaction taking 1.1 seconds.
Beyond that, SWIFT is more limited than blockchain financial settlement platforms, which can act as liquidity providers, said Ripple CTO Brad Garlinghouse at the Paris Fintech Forum in January.
Regardless, R3 is a centralized enterprise DLT attaching itself to centralized SWIFT gpi. Garlinghouse said he believes decentralized blockchain systems “over time are likely to win” the financial settlement battle.
“Today that is not what SWIFT is,” said Garlinghouse. “SWIFT today is a one-way messaging framework, it isn’t a liquidity provider. When we think about an internet of value, it’s a mixture of two-way messaging frameworks—moving to a real-time chatting protocol if you will—coupled with real-time liquidity.”
But with SWIFT, you get to send or receive XRP as well as fiat currency such as U.S. dollars. This bypasses the need to exchange cryptocurrencies at one or both ends of the transaction—at least until they become widely usable at the cash register.
Even if SWIFT is playing for time with Corda Settler on its high-speed gpi, with FATF making it difficult for cryptocurrency exchanges to comply with KYC/AML and anti-terrorism regulations, “over time” could take longer than some cryptocurrency supporters hope.