SWIFT, the global system that banks use to manage cross-border payments, is giving blockchain technology a new appraisal, five years after it took its first look.
This time around, the Society for Worldwide Interbank Financial Telecommunications, is seeking to speed the transmission for data on 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 an assortment of intermediaries before it reaches users such as asset managers, brokers and investment custodians, and the data can be contradictory or erroneous. End users must manually sort, compare and reconcile the data.
Blockchain might well be able to do it better. A hallmark 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. In essence, this means a blockchain validates the data before registering it.
Leading financial institutions including CitigroupC -0.7%, Vanguard and Northern TrustNTRS -2.4% are participating in the trial.
“Innovation and emerging technologies, including blockchain and distributed ledger technology, are really interesting to us,” said Tom Zschach, chief innovation officer at SWIFT. “We’re constantly looking for ways to validate the technology and to deliver the promise.”
The pilot will use enterprise technology company Symbiont’s Assembly platform. Corporate action data will be communicated using the SWIFT network, translated into a single format by SWIFT, then uploaded to Symbiont’s blockchain. Once there, Symbiont’s blockchain will compare the information and create a single record to be shared. In using blockchain to create a singular record, the aim is to reduce manual review of the data, saving time and money.
“What the solution allows us to do is to take in all that data, to use smart contracts to normalize that data and internally compare it, instead of forcing the user to reconcile. You get one golden record,” says Mark Smith, CEO of Symbiont. “One of the big values of blockchain technologies is you have an immutable ledger and you have a provenance of that information.”
Founded in 1973, SWIFT is a non-profit with 11,000 financial-institution members around the globe. The organization provides the infrastructure for interbank communications and facilitates $1.5 trillion worth of payments daily. The network is particularly important for facilitating cross-border payments: it transmits messages between banks in different countries telling them to either credit or debit accounts. While providing critical payments and messaging infrastructure, SWIFT has been criticized for being slow and costly due to the correspondent banking network it connects.
SWIFT’s faults have drawn challengers from the crypto world: Ripple markets a faster and cheaper cross-border payments system through its token XRP; Meta tried to break in with its stablecoin Libra; and central banks around the world are looking into their own digital currencies as a potential solution to inefficient cross-border payments. SWIFT itself has turned to blockchain before as a potential solution to the inefficiencies of the interbank communications world.
In 2017, SWIFT worked with the Hyperledger Fabric blockchain to see if its technology could help banks free up cash stored in overfunded reserve accounts around the world, which are maintained to ensure cross-border payments can be executed. The hope was that blockchain could increase visibility into these overseas accounts so that banks could keep less in them without risking payment delays. Wells FargoWFC -0.5%, Deutsche Bank and JPMorgan ChaseJPM -0.7% were among participants in the project. The pilot concluded that blockchain could improve liquidity management, but that each of the member banks would need to upgrade its systems before such an approach could work.
The pilot announced this week will be tested with a small group of participants and additional feedback will be provided by the end of the month.
“We do view these as R&D projects at this point and the nice thing about 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 pretty specific for custodians and asset managers.”