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Swift finds blockchain “has potential” but will not commit yet

Fintech / 19-10-17 / by
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After months of testing, Swift has published its first conclusions on its blockchain proof of concept (PoC), and presented a live demo of the technology to Sibos delegates. While results so far are “encouraging”, Swift is not yet entirely convinced it’s the best technology for the purpose.

The PoC was launched back in April to test whether distributed ledger technology (DLT) – also referred to as blockchain – can help banks reconcile their nostro accounts more efficiently and in real time, while lowering costs and operational risk. (A nostro account is one that a bank holds in a foreign currency in another bank: it is difficult to monitor real-time nostro positions, due to a lack of intraday reporting coverage.)

33 banks are currently participating in the sandbox, which is part of Swift’s global payments innovation (gpi) initiative.

Swift’s interim report – which surveys the initial founder group of six banks only – provides an overview of the PoC to date, including technical objectives, potential business benefits, as well as key challenges that still need to be addressed to achieve industry-wide adoption.

 

Initial conclusions

Swift’s findings are centred on four areas: functionality, technology, bank feedback and cost.

In terms of functionality, it finds that the Swift-developed DLT application is fit for purpose.  “DLT provides real-time visibility to both the account owner and its servicer on the available and forecasted liquidity on the nostro account and supports payment reconciliation and investigations by providing an enriched data model based on ISO 20022,” Swift says in a release.

On the technology side, however, Swift says it is “still early days”: while the DLT sandbox demonstrates significant technology progress, it will take time for the newer generation of blockchain to be mature enough for industry-wide adoption.

“I think we have to be realistic,” Damien Vanderveken, head of research and development at SwiftLab told GTR on the sidelines of the live demo at Sibos, one of the world’s largest finance events, held in Toronto this week.

He went on to comment on the fact that Hyperledger Fabric v1 – the blockchain framework on which the PoC is based – is still in its infancy. “The Hyperledger Fabric v1 technology was released during the summer, so it’s two months old. It’s still going to take some time before it’s ready for production usage.”

In fact, blockchain may not even be the best solution: Swift has not ruled out that real-time nostro visibility can be addressed using another kind of technology.

“Is blockchain the right technology to solve that business problem? What we have shown so far is quite encouraging: we believe it is the right fit and could solve the problem. But could we do it in another way? Yes, we could solve the problem by using another technology, and that’s one of the things we will confirm by the end of the year – how we are going to move it forward,” said Vanderveken. “Only then will we confirm whether we will do it with blockchain or actually, for example, to minimise the integration effort for the industry, if it may be better to do it differently.”

Even if Swift were to pick blockchain to address current inefficiencies, the choice of specific platform that it uses – Hyperledger Fabric – is not set in stone. “We selected Fabric as one of the blockchain technologies that we consider is suitable for the financial industry,” said Vanderveken at the demo. But he added that Fabric is “not the only one”, and that Swift has not bound itself to a final choice when it comes to platform type. “There are other platforms out there, and we are still very much open to experimenting with those as well.”

Returning to the results: bank feedback on the PoC has been that Swift needs to develop unique value propositions in response to the different levels of sophistication, automation and previous investments of banks. “Differences in the incremental value for each financial institution will depend on its existing liquidity management capabilities,” explained Vanderveken.

Swift has concluded that it’s “crucial” that integration with legacy back-office applications and co-existence with existing processes are taken into account.

Finally, in terms of costs, although Swift has not quantified the investment required, there is no doubt that the cost will be significant. “Banks have said Swift has a role to play to make sure that the adoption is there by putting together a solution which minimises the integration efforts,” said Vanderveken. “Swift needs to bring a solution which minimises investment costs and allows co-existence with existing infrastructure and solutions.”

The findings will drive Swift’s next steps in the project, and will be compared and aggregated with the feedback that they receive from the remaining 27 banks in the group, which are currently undergoing testing. The PoC will conclude in November 2017, with the final results available in December.

Also speaking at the live demo, Matt Shepherd, part of Wells Fargo’s innovation technology team supporting its DLT programme, told delegates: “For us, right now, we do believe that this is a compelling case and we will continue to test with Swift.” He added that the banks look forward to understanding “how this may be integrated with gpi or other platforms”.

Wells Fargo has been involved with the PoC from the start, and, in fact, tested it bilaterally with partner bank ANZ before handing it over to Swift to take it forward on a multilateral basis.

 

Blockchain for payments

Despite the generally positive findings thus far, Swift remains reticent on using blockchain to make payments. “It will take time before it is mature and scalable enough for mission critical applications,” Vanderveken told GTR.

The question of blockchain for payments is particularly relevant in the context of Swift – the system which has supported cross-border payments for decades – as it is now seeing increasing competition from providers offering payments solutions based on blockchain, while it has chosen instead to focus on its gpi service.

For example, more than 100 financial institutions have to date joined Ripple’s enterprise blockchain network, RippleNet, to settle global payments leveraging blockchain technology. (Although many banks at Sibos complained to GTR that Ripple’s progress has thus far been frustratingly slow.) Just earlier this week, IBM and a number of banks launched a new blockchain-powered solution to clear and settle cross-border payments, using cryptocurrency as a bridge between fiat currencies.

Nevertheless, Vanderveken defended Swift’s current payments offering under gpi.

“The approach that we have for payments today is through the gpi initiative, it’s to build on the existing rails, because they are extensively used today. We complement what we are building with gpi with blockchain,” he explained. Although gpi payments are not settled in real time, Swift guarantees settlement within a single day.

Shepherd from Wells Fargo agreed in his address at the Sibos demo: “At this time, Wells Fargo does not believe that DLT can support front-end large-value payments,” he said.

Swift announced this week that its gpi service is growing at a rapid rate, surpassing 2 million payments in September. More than 120 banks, representing over 75% of all Swift payments, are now signed up to the service. 24 of these banks are currently live and actively using gpi, and Swift expects this number to grow to 40 by the end of the year.

 

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Privacy Policy

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Some of your personal data collected under paragraphs 1 and 2 above may be used by us to contact you by e-mail, telephone and/or post for sending information or promotional material on our products and/or services and/or those of our other group companies.
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We may analyse your personal information to create a profile of your interests and preferences so that we can contact you with information relevant to you.

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All our Sites use cookies and similar technical tools to collect information about your access to the Site and the services we provide.

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To turn cookies and similar technologies on and off, see the information in paragraph 5 above. Any questions regarding consents and opt-outs should be sent by e-mail to privacy@gtreview.com or by writing to Data Protection Officer at, Exporta Publishing & Events Ltd, 4 Hillgate Place, London, SW12 9ER, United Kingdom. Alternatively, you can telephone our London headquarters at +44 (0) 20 8673 9666.

8.      Disclosures

Information collected at one Site may be shared between Exporta Publishing & Events Ltd and other group companies for the purposes listed above.

We may transfer, sell or assign any of the information described in this policy to third parties as a result of a sale, merger, consolidation, change of control, transfer of assets or reorganisation of our business.

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Some of our Sites may have a message board, blogs or other facilities for user generated content available and users can participate in these facilities. Any information that is disclosed in these areas becomes public information and you should always be careful when deciding to disclose your personal information.

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Services on the Internet are accessible globally so collection and transmission of personal data is not always limited to one country. Exporta Publishing & Events Ltd may transfer your personal data, for the above-listed purposes to other third parties, which may be located outside the European Economic Area and/or with a different level of personal data protection. However, when conducting transfers, we take all necessary steps to ensure that your data is treated reasonably, securely and in accordance with this Privacy Statement.

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We are committed to keeping the data you provide us secure and will take reasonable precautions to protect your personal data from loss, misuse or alteration.

However, the transmission of information via the internet is not completely secure. Although we will do our best to protect your personal data, we cannot guarantee the security of your data transmitted to our Site; any transmission is at your own risk. Once we have received your information, we will use strict procedures and security features described above to try to prevent unauthorised access.

We have implemented information security policies, rules and technical measures to protect the personal data that we have under our control from:

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Everyone who works for or with Exporta Publishing & Events Ltd has some responsibility for ensuring data is collected, stored and handled appropriately. Each team handling personal data must ensure that it is handled and processed in line with this policy and data protection principles. However, the following people have key areas of responsibility. The board of directors is ultimately responsible for ensuring that Exporta Publishing & Events Ltd meets its legal obligations.

Name of Data Controller


The Data Controller is Exporta Publishing & Events Ltd. Exporta Publishing & Events Ltd is subject to the UK Data Protection Act 1998 and is registered in the UK with the Information Commissioner`s Office.

How to access, update and erase your personal information

If you wish to know whether we are keeping personal data about you, or if you have an enquiry about our privacy policy or your personal data held by us, in relation to any of the Sites, you can contact the Data Protection Officer via:

  • By writing to this address: Data Protection Officer, Exporta Publishing & Events Ltd, 4 Hillgate Place, London, SW12 9ER, UK
  • Telephone: +44 (0) 20 8673 9666
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Upon request, we will provide you with a readable copy of the personal data which we keep about you. We may require proof of your identity and may charge a small fee (not exceeding the statutory maximum fee that can be charged) to cover administration and postage.

Exporta Publishing & Events Ltd allows you to challenge the data that we hold about you and, where appropriate in accordance with applicable laws, you may have your personal information:

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Disclosing data for other reasons

In certain circumstances, the Data Protection Act allows personal data to be disclosed to law enforcement agencies without the consent of the data subject. Under these circumstances, Exporta Publishing & Events Ltd, will disclose requested data. However, the Data Controller will ensure the request is legitimate, seeking assistance from the board and from the company’s legal advisors where necessary.

Changes to this Privacy Statement

We will occasionally update this Privacy Statement to reflect new legislation or industry practice, group company changes and customer feedback. We encourage you to review this Privacy Statement periodically to be informed of how we are protecting your personal data.

Providing information

Exporta Publishing & Events Ltd aims to ensure that individuals are aware that their data is being processed, and that they understand.

  • How the data is being used
  • How to exercise their rights

To this end, the company has a privacy statement, setting out how data relating to individuals is used by the company. This is available on request and available on the company’s website.

Review of this policy

We keep this Policy under regular review. This Privacy Statement was last updated in April 2018.