Swift has officially selected Hyperledger's Fabric codebase for use in its most prominent blockchain project.
Designed to simplify the nostro-vostro accounts banks held to facilitate international transactions, the trial includes participation from BNP Paribas, BNY Mellon and Wells Fargo, as well as three other global financial institutions.
As a founding member of the Linux-led Hyperledger project, it's perhaps not surprising Swift has decided to base its trial on the technology, though it lauded the final work for functionality including user-tailored access to data and other privileges.
If the blockchain proof-of concept (PoC) is successful, Swift's head of the global payments innovation (GPI) initiative, Wim Raymaekers, went so far as to say it could save as much as 30% of the reconciliation costs associated with cross-border payments.
Raymaekers told CoinDesk:
"We're really looking to see if banks can gain better visibility on their information; to optimize the liquidity that they have on one end, but also to reduce the cost of reconciliation."
Other banks participating in the PoC include the Australia and New Zealand Banking Group (ANZ), the Development Bank of Singapore (DBS) and RBC Royal Bank, which were already working with Swift on GPI.
These partners will be joined by 20 other institutions during the test phase of the implementation.
Notably, the trial will also attempt to capitalize on existing standards used by Swift members. The data stored on the blockchain and the APIs used to query and update that data will conform to Swift's ISO 20022 message formats.
If successful, the blockchain PoC could be incorporated into Swift's GPI solution.
"When it comes to exchanging data between nostro and vostro data in accounts, there are solutions today," Raymaekers said. "We are looking to see if DLT is a better solution."
To facilitate international transactions, banks typically store money all over the world in what are called nostro accounts. Yet settlement times can take weeks depending on the complexity of the transaction.
While nostro accounts are designed to save time by moving money closer to where it's needed, before it's needed, that money lies dormant when not in use, collecting less interest than if it was applied in a more active way.
To test if a distributed ledger could minimize the reliance on correspondent banks, Swift divided the trial into two parts, according to Raymaekers.
First, there's the technology itself. Swift's Fabric PoC is being built to leverage the bank messaging platform's existing GPI resources. While launched in February with 12 members, 30 banks are now in some stage of implementation of GPI, with more expected to go live soon.
Using more traditional technology on the GPI toolkit, Raymaekers said Swift has already improved the speed and transparency of its services and now wants to see if blockchain can take it even further.
"Several hundreds of thousands" of messages have been sent since GPI's launch, he said.
The second part of the PoC centers on business. On top of the blockchain implementation itself, Swift's developers plan to build and run a smart contract that could help automate the transfer process.
"We are using DLT to exchange the debits and credits," said Raymaekers. "We are building value added on top through a smart contract application that will show to a bank in real time what it's position is."
Still, the test also occurs within the wider narrative surrounding Swift, since earlier on in the frenzy surrounding blockchain tech and its possibilities, the financial messaging provider was identified as one of the middlemen most likely to be disintermediated.
Along with the DTCC and others, supporters of the existing legacy financial infrastructure were targeted by startups built from the ground up to capitalize on the efficiency of distributed ledgers.
Yet, this year Swift has established itself as open to the idea of evolving its own business model for possible integration with blockchain tech.
While some skeptics persist in doubting Swift's willingness to let go of its market position and adapt to a new paradigm, Raymaekers asserted that its receptivity to changes goes beyond this project alone.
"Maybe there's a completely new way where you don't need to hold money at accounts with your correspondent bank. But that is a complete rethinking of the correspondent banking paradigm."
Image via Swift