Can Swift stay relevant in a world of blockchain?
Swift, founded in 1973 with the aim of standardizing how cross-border payments are sent, is the epitome of a middleman. It sits between many of the banks worldwide, making money off the fees it charges when its members sent transactions between one another.
Since its founding, the number of Swift member banks has grown from 239 to more than 11,000. Last year, the "cooperative society" sent 6.1 billion financial messages on behalf of its members, earning €710m in operating revenue.
Then came the blockchain, and in many ways, all that money is up for grabs.
By providing a shared platform for exchanging transactions in real-time, the technology has led some industry middlemen to reevaluate their roles.
Swift isn't planning to go down without a fight, according to those on the front lines working to help ensure the payment network remains relevant. Yet that doesn't mean it's unwilling to change.
The organization is spearheading a new payments initiative, led by some of the world's largest banks, that approximates the functionality of blockchain. Swift has also pursued a broad collaborative effort alongside startups, looking to adapt to both the technological and cultural winds of change that are shaping finance today.
A new foundation
At the heart of this effort is a plan to reinvent how Swift functions at its core.
Released as a pilot last month, the Global Payments Initiative is aimed at boosting transparency and speeding up the time in which it takes to complete a transaction.
In September, Swift CEO Gottfried Leibbrandt told an audience of 8,000 people at Sibos that his company was looking at blockchain as a way to further enhance the GPI.
One of the 10 global banking executives leading Swift’s GPI Vision Group, which is tasked with laying out the long-term goals of the platform, says that his team is working to anticipate the potentially disruptive — and beneficial — forces of blockchain.
BNY Mellon Treasury Services head of global product management Tony Brady told CoinDesk:
According to Swift, the GPI is being designed to reduce transaction completion times from as long as five days to a single day or less. Potential areas of improvement include an even more transparent fee structure and, in some cases, near-instantaneous settlement times. More than 80 global banks are set to use the new platform when it goes live next year.
Yet working with the existing leaders in the financial industry will only go so far – especially when the competition itself is increasingly coming from the startup space.
Beyond legacy banks
On 23rd September, Marcus Treacher, the former chairman of Swift’s corporate advisory group announced that his company had successfully tested a way to conduct cross-border transactions.
The only wrinkle: he was no longer working for Swift.
Treacher is now the global head of strategic accounts for Ripple, a distributed ledger startup that had just formed an alternative payments network comprised of seven existing Swift members.
With the promise of real-time payments and 100% fee disclosures prior to transaction, the message to Swift was increasingly clear: innovate, acquire or disappear.
As Swift continues to take steps towards refining the GPI and recruiting new users, the payment platform is tapping into the same startups culture that might one day disrupt it. In fact, it’s Swift’s culture itself that is perhaps most in need of change if it is to remain relevant, according to Kevin Johnson, the payments firm’s head of innovation programs.
Speaking to CoinDesk, Johnson said it was no coincidence that there were more startups present at the Sibos event in Geneva than ever before.
"It’s something that we, Swift, want to bring into our own corporate culture," said Johnson, who also co-hosted the Kickstart Accelerator for another group of startups at Sibos. "We’re engaging with the startups to learn some of that culture and bring some of that inside as well."
Schooled by startups
Swift isn't just inviting startups into the room – it's actively supporting their efforts.
In addition to a startup village populated by 25 local fintech startups, Johnson’s Innotribe, a startup accelerator hosted within Swift, paid for the 10 winners of its startup challenge and three winners of its first-ever industry challenge to attend.
Tasked to help Swift use blockchain technology to build a better bond, the three winning startups were awarded $100k contracts based on their early-stage work. But in exchange for that cash, Swift took no equity in the companies. Instead, Johnson said what his company hoped to gain from the blockchain winners was insight into their company culture.
The winner of one of those contracts is Sergey Nazarov, the founder of SmartContract.com. Nazarov built a smart bond service that he argues could serve as a bridge between Swift's old way of doing business and a new future.
Nazarov's proof-of-concept uses a smart contract to calculate its own LIBOR rate and create a bond payable in real time with a Swift message instead of a cryptocurrency. The bond then keeps track of its own history, in a sense, in a similar way that every bitcoin preserves its entire provenance.
He argued that handing over some of Swift's "core services" could save it money in the long run.
"[Smart contracts] are cheaper because instead of a bank shuttling data between three departments across six to 10 databases, involving a ton of people, you write into the contract, that you will get this data from this place, you will compute this operation," he explained. "When it does that, all the parties can look at it and rely on it for their internal systems to do the one small thing they need to do."
What 'efficiency' really means
In reality though, the line between disruptor and disrupted is a blurry one indeed, especially when these upstarts partner with the legacy firm.
Thorsten Peisl, the founder of Rise Financial Technologies, was another recipient of a $100k Swift contract. The former blockchain lead at State Street’s emerging technology division is currently building a permissioned distributed network for multi-asset and multi-currency settlement across borders.
Peisl argued that "it’s naïve to think" Swift or any other legacy infrastructure providers will sit on the sidelines while being potentially boxed out by a new technology.
After all, Swift isn’t really a middleman at all. It’s actually 2,328 middlemen employed by the firm – all with a vested interest for it to survive.
Peisl argues that when a new technology like blockchain arrives, the resulting gray area leads to "shifting jobs", but not necessarily lost jobs. Even if banks can someday transact instantly with one another, he believes Swift's role as the gatekeeper for a closed, highly regulated network will always be necessary.
"If we succeed or someone like us succeeds then clearly the role of Swift is evolving and will change," he said. "But there will always be a role."
Image by Michael del Castillo for CoinDesk
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Ripple.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.