IBM has put itself forward as a viable alternative to Swift and Ripple, launching a new cryptocurrency-powered solution for cross-border payments.
IBM Blockchain World Wire is now “in limited production” and available in 72 countries, IBM says in a statement.
The tech giant describes the solution as a “global payment network” that integrates payment messaging, clearing and settlement in one blockchain-based solution for foreign exchange, cross-border payments and remittances.
In essence, World Wire uses so-called “digital assets” to transfer money across borders: an institution pays in one fiat currency, which is then converted into a digital asset on the blockchain, then sent to the receiving end, where it is converted into fiat currency again.
The network currently supports payment settlement using two forms of digital assets: Stellar’s cryptocurrency lumens (XLM) and a US dollar stablecoin provided by Stronghold.
XLM is a bitcoin-style cryptocurrency with its own value but acts only as a “bridge currency” between fiat currencies on each side of the transaction. This means the customer doesn’t touch the cryptocurrency themselves, and the instant settlement minimises the risk associated with cryptocurrencies’ price volatility.
This works similar to Ripple’s newly-launched xRapid solution, which uses XRP, a cryptocurrency created by Ripple, to settle transactions between fiat currencies.
A stablecoin, meanwhile, is a digital token which is pegged to a fiat currency – in the case of Stronghold, the coin is backed by US dollar deposits.
IBM says it will continue to expand the type of settlement assets used on the platform.
Six international banks have already signed letters of intent to issue their own stable coins on World Wire, “pending regulatory approvals and other reviews”, IBM says. They will offer stable coins representing euro, Indonesian rupiah, Philippine peso, Korean won and Brazilian real.
So far three of the banks have been named: Philippines-based RCBC, Brazil’s Banco Bradesco and Bank Busan of South Korea.
The tech giant has previously told GTR that World Wire could potentially also support other cryptocurrencies like XRP or bitcoin, as well as central bank-issued digital tokens.
The advantage of using blockchain-based digital assets over traditional methods is that it reduces intermediaries and brings down settlement times to seconds, IBM says. Today, banks rely on legacy correspondent banking systems like Swift, which can see cross-border transfers take days and incur high foreign exchange fees.
“This simplified approach improves operational efficiency and liquidity management, streamlining payment reconciliation and reducing overall transaction costs for financial institutions,” IBM notes. “World Wire provides a more straight-through model for cross-border payments using the Stellar protocol that makes money transfers point-to-point in lieu of the complexities of conventional correspondent banking.”
World Wire now has payment locations in 72 countries, with 47 currencies and 44 so-called ‘banking endpoints’ where people can send or receive cash. IBM says local regulations will “continue to guide activation” and the company is “actively growing the network with additional financial institutions globally”. This could include US endpoints later in the year.
Regulation has been one of the main challenges to bringing the solution into production. The project to develop World Wire was first publicly announced at Sibos in 2017, with 13 banks having already conducted pilots. But it took another year and a half for IBM to go live.
“As the industry has begun to evolve over the last two years, we are seeing regulators take increasing interest in all things related to digital assets, blockchain and cryptocurrency,” an IBM spokesperson tells GTR. “The regulatory process continues to take some time and we are actively working with regulators around the world to ensure World Wire is made available in accordance with their recommendations. This has contributed to the additional time it has taken to begin deploying it in select countries.”
The pilot banks back in 2017 included BBVA, Sumitomo Mitsui Financial Group, Mizuho, National Australia Bank, Bank Danamon Indonesia, Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia, Kasikornbank Thailand, RCBC, TD Bank and Wizdraw HK.
Commenting on the role of these banks in the now launched World Wire solution, the IBM spokesperson says: “Those 13 indeed played an advisory role, providing input, insight and ideas that informed the development of World Wire. We are continuing discussions with many while others are awaiting regulatory approval to participate. The regulations in each country make it more time consuming and complex for a bank to join the network, whereas other organisations such as money transfer operators are able to join more quickly.”
Regulatory struggles aside, there is no doubt World Wire will provide a compelling alternative to Swift, as well as to Swift’s current greatest blockchain-based competitor, Ripple. While Ripple has gained some support for its messaging system xCurrent, Euro Exim Bank is so far the only bank that has officially signed up to using xRapid.
Ripple launched xRapid in October after having concluded pilots that saw “dramatic payoffs”: for payments in the remittance corridor between the US and Mexico, financial institutions saved 40-70% compared to what they would normally pay foreign exchange brokers. An average xRapid payment took just over two minutes, compared to today’s average of two to three days when sending cross-border payments.
However, the fact that xRapid uses XRP, which like other cryptocurrencies is extremely volatile, means that many banks have been wary of using the solution. This despite Ripple insisting that users are not exposed to this volatility because they only hold the XRP for less than a minute, if not seconds.
It remains to be seen whether banks will be just as cautious when it comes to using XLM as a settlement method on World Wire. The fact that several banks have committed to issuing stablecoins indicates that this is a route they are more comfortable taking. Added to this comes the fact that 97% of the world’s largest banks are already IBM clients – a fact IBM emphasises in advertising World Wire – which may well make the tech giant a more appealing option for financial institutions.