SWIFT wants to enter the blockchain world, but doesn’t want to be left behind

Rage Comment : As a long-established middleman in the financial industry, SWIFT is also afraid of being disrupted by the real-time trading platform of blockchain technology. In order to maintain a place in the blockchain world, SWIFT is actively cooperating with various start-ups to learn more about the trend of technology culture, aiming to reduce the time to complete transactions from up to five days to one day or less, and improve competitiveness. When start-ups and traditional companies work together, the line between disruptors and the disrupted becomes blurred. Swift believes that no matter what happens in the financial world, its role as the gatekeeper of a closed, highly regulated network is still necessary.

Translation: Nicole

Can Swift stay in the blockchain world?

Founded in 1973, Swift can regulate the way cross-border payments are sent, essentially acting as an intermediary. SWIFT works between many banks around the world, charging a fee when transactions are made between member banks.

Since its inception, the number of Swift member banks has grown from 239 to more than 11,000. Last year, the “cooperative” sent 6.1 billion financial messages on behalf of its members and generated revenue of €710 million.

And then there’s blockchain, where in many ways all the money is up for grabs.

Blockchain technology has caused some industry middlemen to reassess their roles as shared platforms emerge to allow for the exchange of transactions in real time.

Swift doesn’t want to go down without a fight, say those on the front lines of wanting the payment network to retain its place in the blockchain world. But that doesn’t mean it’s unwilling to change.

The organization is spearheading a new payments initiative led by the world’s largest banks that could approach the capabilities of blockchain, and Swift is also working extensively with startups looking to adapt to the technological and cultural trends that are reshaping the financial industry.

A new foundation

The main purpose of this initiative is to reshape the core functionality of Swift.

The Global Payments Initiative, launched as a pilot last month, aims to increase transparency and speed up the time it takes to complete transactions.

In September, Swift CEO Gottfried Leibbrandt told an audience of 8,000 at Sibos that his company was looking to use blockchain technology as a way to further improve GPI.

One of 10 global banking executives heading Swift’s GPI Vision Group, which is tasked with setting the platform’s long-term goals, he said his team is working to anticipate blockchain’s potential for disruption and upside.

Tony Brady

Tony Brady, global head of product management for BNY Mellon Financial Services, told CoinDesk:

“While we are starting to solve cross-border payments problems with technologies that are available, scalable and secure, we want to evaluate whether emerging technologies can help us in some way.”

According to Swift, GPI aims to reduce the time it takes to complete trades from up to five days to one day or less. Potential areas of improvement include a more transparent fee structure and, in some cases, near-instant settlement times. More than 80 global banks will begin using the new platform next year.

However, working with existing corporate leaders in the financial industry can only go so far—especially when competition increasingly comes from startups.

Beyond traditional banks

On September 23, Marcus Treacher, former chairman of Swift’s corporate advisory group, announced that his company had successfully tested the method for cross-border transactions.

The only caveat: He no longer works for Swift.

Treacher is now global head of strategic accounts at Ripple, a distributed ledger startup that just formed an alternative payments network with seven existing Swift members.

With real-time payments and the promise of knowing 100% of transaction fees before a transaction is made, the message to Swift is clear: innovate, learn, or disappear.

As Swift has taken steps to improve GPI and recruit new users, its payments platform is also taking on the culture of its startup peers, something that could one day upend SWIFT. In fact, according to Kevin Johnson, the payments company’s head of innovation initiatives, Swift’s own culture may be the most in need of change if it is to survive in a blockchain world.

In an interview with CoinDesk, Johnson said it was no accident that more startups than ever showed up at the Sibos event in Geneva.

Kevin Johnson

Johnson, who also co-hosts another startup Kickstart accelerator at Sibos, said:

“That’s something we’re trying to incorporate into our own culture at Swift, and we’re working with startups to understand some of that culture and bring that into our company.”

Get inspired by startups

Swift doesn’t just invite startups into the room — it actively supports their efforts.

In addition to the startup community of 25 local fintech startups, Johnson’s Innotribe, a startup accelerator founded by Swift, is offering grants to ten winners of its startup challenge and three winners of its first-ever industry challenge.

The three winning startups tasked with helping Swift build better bonds using blockchain technology were awarded $100,000 in contracts based on their early work. But Swift took no equity in the companies in exchange for the cash. Instead, Johnson said his company wanted to gain insight into the company culture of the blockchain winners.

One of the winners of these award-winning contracts is Sergey Nazarov, founder of SmartContract.com. Nazarov built a smart bond service that he believes can serve as a bridge between Swift’s old way of doing business and its new future.

Nazarov’s proof of concept uses smart contracts to calculate its own LIBOR rate, and uses Swift messages, rather than cryptocurrency, to create bonds in real time. These bonds then track their own history, similar in some ways to how each bitcoin retains its entire provenance.

He believes that abandoning some of Swift's "core services" could save costs in the long run.

He explained:

“Smart contracts are cheaper because instead of having to transfer data between three departments with six to 10 databases, which involves a lot of people, the bank can put the information into the contract, get this data from the contract, and calculate this operation. When you do that, all the parties involved can see and trust the contract, even if it’s a small change made in the internal system.”

What does 'efficiency' really mean?

But in reality, the line between disruptors and disrupted is very blurred, especially when these new startups work with traditional companies.

Thorsten Peisl, founder of Rise Financial Technologies, is another winner of the $100,000 Swift contract prize. The former blockchain director at State Street’s emerging technology division is currently building a distributed network that supports cross-border settlement across multiple assets and currencies.

Thorsten Peisl

Peisl believes it would be naive for Swift or any other traditional infrastructure vendor to just sit back and watch as new technologies threaten to drive them out of business.

After all, Swift isn’t really one intermediary. Swift is actually 2,328 intermediaries employed by the company — all of which have a vested interest in surviving.

Peisl believes that when a new technology like blockchain emerges, the gray area it triggers will lead to "job changes," but not necessarily job losses. Even if banks can one day make transactions instantaneously, he believes Swift's role as a gatekeeper to closed, highly regulated networks will always be necessary.

He said:

“If we are successful, or an institution similar to ours is successful, then obviously the role of Swift is changing and will change, but there will always be a place for Swift.”