| 10-10-2016 | Carlo de Meijer |

blockchainRecently there were some interesting announcements on blockchain and the payments industry that triggered me to write this blog. Especially now that SWIFT’s SIBOS event takes place in Geneva.

First, SWIFT announced that it had successfully completed the first phase of the global payments innovation (GPI) pilot with 15 banks. This service, intended to increase the speed, transparency and end-to-end tracking of cross-border payments, has so far attracted interest from 80 global banks. Aim is to go alive with the service in early 2017.

Second, Ripple is questioning the value of GPI. In a statement during SIBOS Ripple said  “Swift’s GPII does not address the antiquated infrastructure that makes real-time settlement a constant challenge. GPII does not change the underlying infrastructure at all, it merely makes a minor adjustment to its current settlement requirements”.

Third, seven large banks including Bank of America, Santander and the Royal Bank of Canada have teamed up to create a global blockchain payments network using Ripple’s distributed ledger technology. Some say this could even replace the existing SWIFT network.

The “SWIFT-replaced-by Blockchain” conversation

In a recent article on the website American Banker, the ability for blockchain technology to replace “an old-fashioned payment settlement and messaging technology” called SWIFT was discussed. The conclusion was that blockchain could prove to be enormously transformational, potentially even replacing the SWIFT network for inter-bank payments. Next to that it seems as though blockchain could not only replace SWIFT but also increase the security, expediency, and accuracy of the system.

Should SWIFT really be worried?

My first question is if blockchain really a threat for an organisation like SWIFT, that nowadays connects more than 8,000 financial institutions around the globe. This coordinated global payments network worked well enough for over forty years. Designed before the digital age, it is the best existing interbank messaging and exchange system, but needs a major upgrade.

A second question is what are feasible scenarios for the years to come? Will the SWIFT network be replaced by a blockchain-based one e.g. Ripple? Will SWIFT cooperate with Ripple or will SWIFT create a complete new blockchain network of their own? Or are there other alternatives?

Credit Suisse Report: “Bitcoin: The Trust Disrupter”

Recently Credit Suisse in its report “Bitcoin: The Trust Disruptor”, stated that SWIFT “should  watch out for the underlying blockchain technology”. According to this research blockchain  could endanger the “raison d’être” of SWIFT. Blockchain is seen as a cheap, fast and difficult-to-hack, completely automated transaction system, that delivers a more robust and distributed security architecture for banks. Such a system could become an alternative for expensive international money transfer transactions, according to the report.

SWIFT is described in the report as slow, expensive and old-fashioned. Transactions via the SWIFT network certainly cannot happen in real-time, and moving money and information is a slow, expensive, process. An international transaction may take days to settle and the fees are more than 10 percent of the total transaction costs.

Besides, the existing system (that is a number of decades old) lacks innovation. The recent surge in cyberattacks in Bangladesh, Vietnam and Ecuador have highlighted the vulnerabilities in cross-border transaction banking, and particularly in the SWIFT network which issued these payments. SWIFT has vowed to update its security procedures in the wake of the hacks, and committed funding to a new programme to enhance controls, audit frameworks and fraud detection.


It might be Ripple, the interbank payment solution using distributed ledgers, that SWIFT really needs  to worry about, according to some. And that for various reasons.

Growing number of banks use Ripple

Ripple has announced the names of seven banks on its network, the first in the world to move real money across borders using any kind of blockchain-based technology. These include Santander, UBS, UniCredit, ReiseBank, CIBC, National Bank of Abu Dhabi (NBAD), and ATB Financial. Ripple said “it has some 90 banks in the pipeline, 30+ pilots completed and 10 banks in commercial production deal phases”. Ripple’s banking network may grow to even rival that of the banks-backed R3CEV consortium. In fact the two networks complement one another. So there is enough potential to rethink how the future way of money transfers across borders should look like.

Global Payments Steering Group

Ripple recently announced that it has reached agreement with several major banks to create the Global Payments Steering Group (GPSG). This new platform, that includes names like Bank of America/ Merrill Lynch, Santander, UniCredit, Standard Chartered, Westpac Banking Corporation, Royal Bank of Canada and Canadian bank CIBC, aims to form the foundation of a global network that performs a similar service as SWIFT inter-bank messaging but with near-instant settlement times. Global Payments Steering Group’s main mission is the creation and maintenance of a payments transaction rulebook and formalized standards that they intend to then take to international standards-making bodies.

According to Don Donahue, Chairman of GPSG and former President of DTCC:

“The creation of GPSG is significant because this represents the first time that major banks have formulated policies to govern the transfer of money across borders using Blockchain. I’m very excited to be a part of this group of forward-looking leaders who are building the payments network of the future today.”

First phase of the program is creating a standardized agreement that establishes the terms and conditions which a bank must agree to in order to join, detailing how transactions will be processed and what kinds of information will be exchanged. Then a “functional standards document” should be created that would enable various banks to interact across currencies and jurisdictions.

Multi-sign feature

Ripple is looking to capitalise on the recent cyberattacks on the SWIFT network by introducing a multi-sign feature on its consensus ledger. This allows account holders to require signatures by more than one stakeholder to authorise their transactions. With multi-sign, the user can require signatures from other users, devices, or institutions, making the life hard for malicious actors. Ripple is also planning to offer a similar multi-sign capability over its Interledger Protocol (ILP). The new features found in distributed fintech solutions, such as multi-signing, are not available in traditional systems like SWIFT’s.

Is GPSG the future SWIFT 0.2?

Ripple’s GPSG could become a serious future alternative for the present SWIFT network, being the only blockchain bankers’ network on a global scale with defined rules and governance.  Although it is not designed to target SWIFT as a future replacement (in so many words), the concept however is similar, and should be much more efficient in the way it works, in comparison. GPSG may be the foundation of a completely modern payments network. One simple integration affords banks access to a global real-time transaction network. With payment rules and standards, process support, and a built-in community, allowing GPSG to offer banks a low-risk way to start using blockchain technology to accomplish their payments goals.

Or will there be a SWIFT-Ripple collaboration?

There is also a scenario in which Ripple will work together with SWIFT’s messaging network, and become part of the infrastructure of SWIFT.

There are some good arguments for that. SWIFT is already far and away the biggest global payment system. Any bank that wants to send/receive payments internationally is a member. The SWIFT’s network has the advantage of having the 8,000 banks and the whole community, as well as the governance and oversight already. SWIFT’s unique messaging categories would be well complemented by a message called “RippleConnect”. SWIFT has run Ripple in its labs and is totally up to speed with what Ripple does.

Or will SWIFT create an entirely new network based on blockchain?

A third scenario is that SWIFT creates an entirely new blockchain-based network. In SWIFT circles it is heard that “if anybody can implement Blockchain based global payments on a mass scale it is SWIFT”. SWIFT, being member of the Hyperledger Project just like Ripple, is now also looking to this technology and its possible applications.

The positives of SWIFT is that is has the perfect corporate structure to implement a blockchain based cross border payment system on a global basis for its existing 8,000 current member banks. In the first place because SWIFT is a cooperative owned by the member banks. SWIFT has the trust of Banks whereby the annual SIBOS event allows personal relationships to be renewed. The negatives is that SWIFT should completely replace its existing (though very old fashioned) system by a permissioned blockchain system. That would take a very long time and costs a lot of money.

What scenario is most likely?

What can we conclude from this? What is most likely is that the recent SWIFT hacks will accelerate the transition to blockchain-based cross border payments. This will allow Ripple to continue attracting more new members that are striving for faster cross border payments. But for mass adoption of this technology a much larger network of banks is needed. A cooperation between Ripple and SWIFT  whereby Ripple will become part of the SWIFT infrastructure may thereby be the most likely scenario. The best of both worlds!


Carlo de Meijer

Economist and researcher