SWIFT Launches Initiative To Improve Cross-Border Payments Using BlockChain

SWIFT imageThe Society for Worldwide Interbank Financial Telecommunications (SWIFT), a Belgium-based facilitator of global bank transfers, has launched a cross-border payments initiative to improve bank customer service by increasing transparency, speed and predictability of payments using the block chain. The project, called the Global Payments Innovation Initiative, will focus on business-to-business payments in early 2016, according to Silicon Angle.

The service will help companies strengthen global supplier relationships and improve treasury efficiencies, according to the SWIFT website. Companies will be able to gain payments directly from banks along with features such as end-to-end payment tracking, same-day use of funds, fee transparency and predictability, and the transfer of more payment information.

A Changing Transnational Payments Market

SWIFT’s initiative is happening in an environment where transnational payment services are facing new challenges as more nimble, faster and cheaper startups enter the market.

Companies like Ripple Inc. are introducing block-chain powered systems to help banks with intra-bank transfers, aiming to extend their platform to different banks. There are also startups like Alliance Commerce and Coins.ph that use bitcoin to provide person-to-person payment and remittance services that circumvent traditional financial service providers.

The new service will operate under multilateral service level agreements among the participating banks. It is designed to address customer needs without undermining the banks’ abilities to meet compliance obligations, liquidity and credit risk requirements. Participation will be available to any SWIFT financial institution that adheres to its rules.

Secure Cross-Border Payments

The initiative will build on the strength of secure, cross-border payments day in and day out, said Gottfried Leibrandt, SWIFT CEO.

SWIFT also plans to utilize Innotribe, its innovation arm, to engage the fintech community and examine innovations like real-time payment status tracking, the use of peer-to-peer messaging and block chain technology, said Wim Raymaekers, SWIFT head of banking markets. Innotribe provides a platform to understand the dynamics behind technology changes.

The SWIFT initiative won’t change the payment system overnight, said Wim Raymaekers, head of banking markets. Banks have built an existing system for compliance and they must maintain a level of control.

The block chain may be more applicable to complex areas such as securities, Raymaekers said, especially in the area of reducing transaction time, or reducing the needed term to null.

Moving the complex netting of securities settlements in an investment bank to a block chain will not be simple, according to The International Business Times. This will require the integration of two very different paradigms, one that is premised on transparency with another that is closed, functional and mathematical.

Another consideration is that some banks have more capable technology than others. Goldman Sachs and UBS, which have been the most vocal about block chain potential, have fewer legacy issues than other banks.

Also read: SWIFT payments CEO doesn't see block chain replacing current 'efficient' banking systems

Assist With Compliance Issues

The block chain also can help companies address compliance issues. In some parts of the world, the cost of maintaining correspondent banking relationships outweighs the benefits. There has been a trend of “de-risking,” with banks closing correspondent accounts in certain countries, according to The International Business Times.

Block chains can automate KYC/AML checking. To do AML cross-border checks, a block chain address can tag a certain country at the time it gets permission to do a transaction, according to Multichian’s Gideon Greenspan. The block chain would then apply different logic for transactions between countries.

As block chains move to a more managed environment, identity challenges are being addressed, noted Raymaekers.

If control mechanisms are not in place, banks will not adopt an open technology, Raymaekers said. This is why the SWIFT network has relationship management features that allow only certain parties to send payments.

Featured image from Shutterstock and SWIFT.

Last modified (UTC): December 14, 2015 12:30 PM

About the author

Lester Coleman

Lester Coleman is a media relations consultant for the payments and automated retailing industries.