Blockchain technology can speed up SWIFT data flow

SWIFT, the global system banks use to manage cross-border payments, is giving blockchain technology a second look, five years after it took its first look.

This time, the Society for Worldwide Interbank Financial Telecommunications is trying to speed up the transmission of data about corporate actions, events such as dividend payments, exchange offers and mergers that affect investors and money flows around the world. The current method involves data passing through a variety of intermediaries before reaching users such as asset managers, brokers and investment managers, and the data may be conflicting or erroneous. End users must manually sort, compare and reconcile the data.

Blockchain may well do better. A characteristic of the technology is that blockchains are immutable ledgers, and a key advantage in this case is that they operate via consensus mechanisms that require agreement on the definition of each data item by a network of participants. Essentially, this means that a blockchain validates the data before it is recorded.

Leading financial institutions including CitigroupC
Vanguard and Northern TrustNTRS
participate in the trial.

“Innovation and new technologies, including blockchain and distributed ledger technology, are very interesting to us,” said Tom Zschach, chief innovation officer at SWIFT. “We are constantly looking for ways to validate the technology and deliver on the promise.”

The pilot will use enterprise technology company Symbiont’s Assembly platform. Business transaction data will be communicated using the SWIFT network, translated into a single format by SWIFT, and then uploaded to Symbiont’s blockchain. Once there, Symbiont’s blockchain will compare the information and create a single record to be shared. By using blockchain to create a single record, the goal is to reduce manual review of the data, which saves time and money.

“What the solution allows us to do is take all that data, use smart contracts to normalize that data and compare it internally, instead of forcing the user to vote. You get one golden record,” says Mark Smith, CEO in Symbiont. “One of the great values ​​of blockchain technologies is that you have an immutable ledger and you have an origin of that information.”

Founded in 1973, SWIFT is a non-profit organization with 11,000 members from financial institutions worldwide. The organization provides the infrastructure for interbank communication and facilitates payments worth 1.5 trillion dollars daily. The network is particularly important in facilitating cross-border payments: it transmits messages between banks in different countries telling them to either credit or debit accounts. While providing critical payment and messaging infrastructure, SWIFT has been criticized for being slow and expensive due to the correspondent banking network it connects to.

SWIFT’s failure has drawn challengers from the crypto world: Ripple is promoting a faster and cheaper cross-border payment system through its token XRP; Meta tried to break in with its stablecoin Libra; and central banks around the world are looking at their own digital currencies as a potential solution to inefficient cross-border payments. SWIFT itself has approached blockchain before as a potential solution to the inefficiencies in the interbank communications world.

In 2017, SWIFT worked with the Hyperledger Fabric blockchain to see if its technology could help banks release cash stored in overfunded reserve accounts around the world, which are maintained to ensure cross-border payments can be made. The hope was that blockchain could increase the visibility of these foreign accounts so that banks could hold less of them without risking payment delays. Wells FargoWFC
Deutsche Bank and JPMorgan ChaseJPM
were among the participants in the project. The pilot concluded that blockchain could improve liquidity management, but that each of the member banks would need to upgrade their systems before such an approach could work.

The pilot announced this week will be tested with a small group of participants and further feedback will be provided by the end of the month.

“We look at these as R&D projects at this point, and the beauty of innovation is that it doesn’t always have to work,” Zschach said. “It’s really about our ability to solve a real problem that’s out there — in this case, it’s quite specific to custodians and asset managers.”