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Over the past two years, the capital markets’ ecosystem has undergone a period of accelerated digital transformation, largely due to COVID-19. But the technological landscape is ever-changing and often challenges the efficiency of traditional practices.
Having been a commanding participant in the execution of financial transactions and payments between over 11,000 banks and financial institutions in over 200 countries and territories, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) has been a steadfast and secure financial messaging service that executes international transactions among banks.
SWIFT has made it much easier to dispatch cross-border payments and has established itself as a dominant player in global financial transactions. But only recently has it gained mainstream attention, when the United States and European Union removed key Russian banks from the cooperative, including Bank Otkritie, Novikombank, Promsvyazbank and more, to further economic sanctions that started in February 2022.
As the financial industry homes in on SWIFT, it begs the question, is there a better and faster way to accomplish cross-border payments? Many are now seeing blockchain technologies become the mechanism for driving the next generation of global finance solutions.
The old guard: A brief history of SWIFT
Headquartered in Belgium, SWIFT’s vision has always been to create a common language for international financial messaging and a service to enable this. It is now the mechanism for most international money and security transfers, but maintaining a legacy payment system can be difficult and reveals the need for innovation.
The types of transformations that are needed throughout the payments’ ecosystem should address the slow processing speeds corresponding with high fees and a history of cyber breaches due to high volumes and mass data transfers.
The power of blockchain and the entrance of new players
The introduction of blockchain has altered technology’s path and the industries that surround it. Blockchain technology is a universal and immutable ledger for recording transactions and tracking assets with complete transparency, and businesses worldwide are taking advantage and adopting the technology. The application of blockchain in the financial industry can offer the opportunity for new players to provide speed, cost efficiency and more secure solutions for moving value, while transactions can be approved directly and simultaneously by validators.
The growing conversation around blockchain technology and its advantages in the financial sector sparks a much-needed discussion on SWIFT’s viability.
Enter the new players
As blockchain technology continues to rise, it has led to new conversations surrounding the future of finance, monetary transactions and payments use cases. Seeing the success of blockchain within the crypto industry undoubtedly sparks interest in its potential use cases for other applications. An obvious use case is for cross-border transactions, making blockchain a major contender against SWIFT. While some may scoff at this idea, the potential for blockchain to disrupt this space is gaining traction and becoming a more serious discussion to be had.
With blockchain’s elimination of reliance on intermediaries, international banks can connect directly to one another on the same network, cutting down time and resulting in minimal fees. While current cross-border transactions are costly and can take several days, blockchain technology enables them to take place in a matter of seconds. These transactions can also be better tracked, as the blockchain keeps a record of all transfers of data, which are stored and timestamped in the master ledger.
Banks that invest in decentralized systems and adopt blockchain technology will soon realize its many benefits. With regulations in place for commercial banks, there will first need to be standards and guidance established. Once these standards are established, financial institutions will have the opportunity to redefine the entire industry and prove blockchain’s transformative use cases for global finance.
Looking to the future
With the financial industry recently homing in on SWIFT, it’s time to take a step back and reevaluate the way in which global transactions are completed. Blockchain-powered alternatives have arrived and provide users within banks and financial institutions the opportunity to complete the same tasks at a lower rate, with higher security and speeds. Immersing blockchain fully into the global financial industry allows greater trust in a user’s shared system available worldwide.
Yamini Sagar is a senior vice president at Roxe.