Eugene Grygo, Chief Content Editor, FTF News
The SWIFT cooperative for financial messaging systems recently announced that it is exploring how distributed ledger technology (DLT)/blockchain can help its global payments system. Upon further digging, I found out that the “underlying DLT sandbox” will be helpful in testing other proof-of-concepts (PoCs) such as one to come for securities processing.
To quickly recap, SWIFT is launching its initial PoC to explore whether DLT can help its clients “reconcile their nostro databases in real time, optimizing their global liquidity,” according to the cooperative.
“Under the current correspondent banking model, banks need to monitor the funds in their overseas accounts via debit and credit updates and end-of-day statements. The maintenance and operational work involved represents a significant portion of the cost of making cross-border payments. This PoC will test whether distributed ledgers may be able to help banks reconcile those nostro accounts more efficiently and in real time, lowering costs and operational risk,” according to SWIFT.
The inspiration for the PoC came from SWIFT’s global payments innovation (gpi) initiative, targeting the need for a new standard in cross-border payments. Leading correspondent banks helped SWIFT scope out the new PoC and “SWIFT gpi member banks can apply to participate in this PoC, set to launch in early 2017.”
As readers know, FTF News focuses on securities processing and I asked SWIFT officials if this payments-focused POC would have implications for SWIFT and its offerings for securities processing. SWIFT has messaging solutions for confirmations and allocations; collateral management; settlement and reconciliation; corporate actions; and funds distribution.
So, pardon the pun (had to), but I got several swift responses (forgive me).
“SWIFT’s vision is to evolve its current platform serving 11,000 members to support blockchain-based services when the technology will be matured,” Damien Vanderveken, head of R&D, SWIFTLabs and user experience at SWIFT, tells FTF News.
“The objective of the platform is to be use-case agnostic, so that it can be used regardless of whether the use-case is in payment or in securities; very much like today, SWIFT products and services are used in multiple contexts,” Vanderveken says. “This PoC will focus on a payment use-case but the underlying DLT sandbox used is being built to support other PoCs in the future, including in securities processing.”
The findings and technology development from the first POC will definitely be transferred to other SWIFT activities.
“A number areas that will be explored in the PoC such as security, data controls, identification framework, etc. are equally applicable to use-cases beyond payments,” Vanderveken says. In short, SWIFT’s vision is to have multiple use cases for DLT/blockchain and avoid a separate blockchain POC for securities and other areas.
“The DLT sandbox environment supporting the gpi PoC will be used later in 2017 for other PoCs,” Vandervoken says. “The topics of other PoCs, which will be running in the DLT sandbox environment, can’t be confirmed at this stage.”
So, there’s a lot more to come from SWIFT and its DLT/blockchain initiative, and I suspect the industry will be watching developments very closely.
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