SWIFT, which is the oldest international interbank system for transferring information and making payments, is going through not the best and not the worst of times, but, as the experts say, strange times. On the one hand, SWIFT is trying to evolve, on the other, competitors are becoming more and more well-known and capable, for example, the Chinese CIPS and Russian SPFS, and finally, Ripple which is based on blockchain.
We have previously discussed the SWIFT system on the blog, but it’s worth a brief recap. SWIFT is an abbreviation for Society for Worldwide Interbank Financial Telecommunications. SWIFT-BIC, BIC code, SWIFT ID or SWIFT code – these are all part of SWIFT, plus another service – SWIFT gpi. The SWIFT system was founded in Belgium in 1973; its co-founders were 248 banks from 19 countries. Over the years, the SWIFT “family” has grown. SWIFT currently has over 11,000 organizations as members, of which about 1,000 are extremely large global corporations, including banks from more than 200 countries.
To hamper the flow of finance is more trouble than it’s worth
Every day more than one million transactions on remittances, interbank payments, and securities go through the global SWIFT system. Annually 4 billion payment orders pass through SWIFT. For someone not connected with the banking system it is difficult to even imagine such a powerful financial flow through banking channels.
For many years, this system has worked well enough but in 2012, under pressure from Washington, SWIFT cut off Iranian banks: their operations via the system were blocked. In 2017, the banks of North Korea were blocked as well – again under pressure from Washington. In 2018, talks started about blocking banks from China and Russia.
Although so far neither China nor Russia has been disconnected from SWIFT, the countries have accepted the challenge – and have begun to more actively develop and improve their systems for transferring interbank payment orders and performing various financial transactions. And is it worth mentioning the volume of money involved in operations between these countries? The European banking SWIFT “family” responded from Brussels to Washington about the inadmissibility of such “political interference” in the system of interbank relations. But, as they say, “the bell rang,” and loudly. In addition, it is important to understand that SWIFT is heavily dependent on the US Federal Reserve and the policies of the US administration.
New standards and greater transparency
However, even without all this, many people in the world have begun to raise questions about the functioning of SWIFT in general.
Let’s recall that the main function of the system is the exchange of financial messages between members of the SWIFT community. It is guaranteed to the sender of the message that it will be delivered to the recipient, and vice versa. SWIFT is used in almost every country; many large and medium-sized financial companies are connected to the system that carries out the financial messages exchange.
One of the drawbacks of the SWIFT system is that it fails regularly, and important information between the participants of the data exchange process is lost as a result. In this regard, the management of SWIFT recently announced the launch of a new cloud-based payment management service, which will allow quick processing of requests between banks in a single network. With the help of the new service, banks will be able to more quickly regulate and resolve cases where incorrect information is provided, data lost or payment details missing.
This tool, according to SWIFT management, will complement the existing preliminary checkout system – gpi, which identifies and eliminates a wide variety of errors in the chain of payment orders between participants. The new function is integrated directly into the SWIFT gpi service, available for all 11,000 banks connected to the entire system. Thanks to the new tool, SWIFT will improve the transparency of payments and reduce the time for approval of financial transactions, especially for when it’s necessary to exchange large sums of money in as short time as possible.
SWIFT reported that the organization is aware of the claims to the united system and it intends to improve the new standards for money transfers. SWIFT is working on a more robust implementation of the ISO 20022 standard. At present, this standard is being gradually implemented by members of the global financial community, international clearing organizations, national central banks and central depositories of a number of countries.
The first version of the standard was presented to the world community back in 2008, but they want to introduce it globally with all improvements in 2021-2022. The management of SWIFT said that an international group of experts is actively working to improve the money transfer system and the transition to the new standard.
China, Russia and the blockchain
And yet, for example, Russia has begun to work more actively to improve its independent financial messages system (SPFS), to which more than 400 users are already connected. According to a number of experts, the SPFS is much cheaper and more technologically advanced than its Western counterpart SWIFT and could be the basis for creating a dollarless payment zone between powerful countries – China, Iran, India, Turkey and others, which are to a significant extent free from US influence.
In addition, it is important to note that more and more countries, mainly in the Asian region (the fastest developing in the world), are connecting their banks to the Chinese CIPS system (China International Payments System) – an analogue of SWIFT. The Chinese CIPS is able to integrate with the Russian SPFS, and the guarantor of the successful operation of the systems are the heads of all countries participating in international financial transactions.
It is also important to understand that in the world of today more and more large financial organizations are talking about improving the blockchain system. For example, work continues on improving the fundamentally new payment transfer system based on blockchain technologies – Ripple, since, according to many experts, this may be a real alternative to SWIFT, which with every year is becoming more and more dependent on the political decisions of this or that country.
Blockchain technology does not allow a specific participant in the system to dictate its conditions to everyone else within it. In this case, the system will be able to make any payment with a minimum number of participants and directly from the sender to the recipient.
And to confirm the seriousness of talks about the transition to the new blockchain system, suffice it to say that the experiments are being carried out at the state level in China, Japan, Russia, the Scandinavian countries and Latin America, in the United Arab Emirates and other countries. These trends are very significant for the entire world system of financial transactions. And SWIFT management fully understand this. What conclusions will they draw? We will follow the news.