Corda powered SWIFT GPI Link could be a game-changer in global trade finance

In September, SWIFT – the inter-bank messaging firm, announced the successful proof of concept (PoC) of the “GPI Link” platform in collaboration with R3. The SWIFT Global Payments Innovation (GPI) platform has previously trialled Hyperledger without much luck. 

However, with R3’s growing network of corporates, the pilot seems to have gone better. The pilot also had used Ripple’s XRP, although R3 have stressed that they are agnostic to cryptos or fiats that the transactions are in.

This is a major announcement. Will this be a game-changer in Trade Finance? What does this move from SWIFT, do to trade finance DLT consortia like Marco Polo or Voltron?


Arun Krishnakumar is a Venture Capital Investor at Green Shores Capital, focused on Sustainable Deeptech investments.


Swift

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SWIFT have been experimenting the usage of DLT in some shape or form for its GPI platform for almost two years now. We have been following that closely at Daily Fintech. I had covered two previous key decision points in the past. The first one was in Dec 2017 and again in March 2018.

The GPI platform has been one of the key additions to SWIFT’s capabilities for cross border payments. In the past, cross border payments between institutions have been inefficient due to the opaque correspondent banking process. The GPI was built on top of SWIFT’s messaging capability.

SWIFT’s members can now use the GPI to perform international payments. SWIFT offer a set of cloud based tools that its members can use. Members can track payments and monitor service levels at any point, which wasn’t possible before GPI. Within a year of launch GPI has processed $300 Billion in cross border payments.

Having tasted some success with the GPI’s roll out, SWIFT have taken the next step in piloting the integration of DLT with GPI. The integration will target inefficiencies in trade finance. Today’s trade finance processes are so slow that Mr Vijay Mendonca, Head of Trade Products at HSBC jokingly mentioned this at SIBOS last week.

“The time it takes for a ship to move goods is faster than the time it takes documents to move between the importer and exporter” 

– Vijay Mendonca, Head of Trade Products, HSBC

There is a dire need for a platform that is ubiquitous, and can solve this challenge within trade corridors across the world. Several banks have tried to solve this over the past few years using DLT. They have had successes in executing safe and controlled trade finance transactions on the Blockchain. Some of them have used it for the sake of marketing as well.

SWIFT can make a world of difference to this space through their GPI capability. The solution they have started with is GPI Link. Swift’s GPI and R3 have worked together to integrate trade platforms to GPI members and offer off-ledger settlements of transactions.

The platform can address the following use cases,

  • Payment Initiation and Tracking
  • Control of Payments and acknowledgement/confirmation of receipt
  • A confirmation on the trade platforms, and a subsequent movement of goods

The tool that enables this from Corda’s end is the Corda Settler. The Corda Settler used XRP for this pilot, however, it can accept other cryptos or fiats too.

“This integration with SWIFT GPI will enable obligations created or represented on Corda to be settled via the large and growing SWIFT GPI network. “

– Todd McDonald, Cofounder, R3.

SWIFT also confirmed that banks are sceptical about using cryptos as a settlement mechanism. Regulatory uncertainties around cryptos also make them less desirable as a cross-border payments mechanism between institutions. Hence, the system will need to support traditional payments mechanisms.

Marco Polo and Voltron have been operating as DLT consortium models for trade finance. However, they haven’t been able to see mass adoption of their platforms. I have spoken to several start-ups focusing on trade finance, and solving them using DLT. Most of them focus on a specific corridor, as they need to start somewhere.

They (startups) also crib about how hard it is to add efficiencies to a largely paper based industry (trade finance). But when an established player, with a network like SWIFT gets into this space, the benefits can be huge.

The GPI network processes over 50% of its transactions within minutes, and almost all transactions within 24 hours. Integrating this with trade platforms to provide comparable service levels across trade corridors will be a game changer. Watch this space.

Notable Replies

  1. Trade Finance is such a huge money spinner for the banks and massively inefficient. In short it is a window of opportunity big enough to drive a truck through and it is SWIFT’s game to lose.

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