ripple

From a Blockchain based to a Blockchain inspired world, SWIFT could deliver verdict at Sibos

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This time last year, the dust hadn’t settled on the Blockchain hype, and several key players within Fintech and Financial Services were quite upbeat about the possibilities. However, as results of PoCs from various consortiums, central banks and payment providers emerged, the results were mixed. Daily Fintech covered an article on R3’s miseries towards the end of last year when Goldman Sachs left the consortium.

Since then, R3 publicly moved away from Blockchain, into a Blockchain inspired world using an open source distributed ledger named Corda. The R3 consortium lost three major banks towards the end of last year. This is vastly attributed to the fact that they chose to move away from a pure Blockchain implementation to a Distributed Ledger implementation for Corda.

The three banks Goldman Sachs, Santander and JP Morgan left the consortium and invested in Axoni that was a pure Blockchain firm. It got worse when R3 blogged that they were not a Blockchain firm, and had always been a distributed ledger company and got trolled on social media for that.

This was shortly followed by the news that SWIFT had launched its inter-bank payments platform that it believed would be the future of its cross border payments platform. The platform was called GPI (Global Payments Innovation), and had a founding consortium of 12 global banks. The GPI, at that time was based out of traditional technologies and not Blockchain. However, earlier this month, SWIFT announced that GPI was being beta tested on Blockchain with 22 new banks validating the system. Verdict on this PoC is going to be at Sibos later this year.

Swift GPI

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Apart from this, the Bank of England (BoE) haven’t delivered a conclusive verdict on the PoC with Ripple for Cross border payments. The detailed report on the PoC was released earlier this month. The key message was:

” Cross-border payments when applied to wholesale markets present different challenges than when compared with retail and corporate transactions, which the Ripple product is designed to handle. The availability of liquidity is one such challenge, and the PoC allowed the Bank and Ripple to begin exploring these questions. “

In other words “Ripple’s solution wasn’t fit for purpose”, although Ripple chose to see it differently.  A few days later, Ripple announced that a pure Blockchain based approach was not scalable for banks and advocated a “Hybrid approach”.

Wearing my technology hat on, I see some fundamental lessons here, and I may be repeating what has been so often mentioned.

  • Find technologies that can solve your problems – it may not have to be Blockchain.
  • Do not interchangeably use Decentralised Ledgers and Blockchains. You can photocopy on a Canon machine too (not just on Xerox).
  • Innovation doesn’t always have to be on sexy technology. SQL Server and Oracle can do the job too.
  • Simplicity is often overlooked and massively underrated.

I believe that SWIFT’s announcement of the results of their Blockchain PoC at Sibos could provide a decisive direction for Blockchain in Financial Services/Payments. And it might well be “Let’s Move On”.

Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

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Ripple may become real competition for SWIFT in cross border payments

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Next week, 8,000 bankers and their vendors fly into Geneva for 4 days of talking about FinTech. Last year I had to fly to Singapore. This year, I can just hop on a train from Bern (sayonara jet lag).

Last year Emergent Fintech started to move onto the main stage at SIBOS and this year it really is center stage in a way that resonates with the people who come to SIBOS; there is less talk about disruptive business models replacing incumbent banks and more about how disruptive technology can help Banks make a quantum leap in processing efficiency.

However one Emergent Fintech venture that is active at SIBOS could give SWIFT (which owns SIBOS) some cause for agita. Ripple is emerging as a real contender in cross border payments, which is a business that SWIFT has dominated for decades.

Ripple Basics and Recent Momentum

To quote from Ripple information on SIBOS (Stand F60):

“As bank-grade distributed financial technology, Ripple delivers instant, certain, and low-cost settlement for all banks via a global network of banks and market makers.

 Ripple offers a real-time cross currency settlement solution and a FX market making solution, both available for license. These solutions enable you to settle cross-currency payments efficiently, by connecting your bank directly to other banks around the globe for direct bank-to-bank settlement.”

Ripple recently closed a $55m Series B and in today’s market, a Series B is a good proxy for momentum. The investors are mainly banks, which makes sense as they will be the users.

More importantly, they are making the first live payments on the network, talking about transactions completing in 20 seconds.

The recent problems with Ethereum play into Ripple’s hands. For a long time, many people said that Ripple might be easy to implement but that it was a commercially controlled currency. The Ethereum problems show that all new digital currencies have their issues.

Visa has also just thrown in its hat into the cross border SWIFT alternatives.

The cybersecurity challenges that SWIFT suffered earlier this year must be making banks more willing to look seriously at alternatives.

Whether cross border payments use Ripple, Ethereum or Bitcoin Sidechains remains to be seen, but it seems clear that we can expect cross border payments completed within seconds in the not too distant future. It is pretty clear where the puck is headed.

SWIFT’s own Blockchain initiative 

SWIFT announced they were looking at Blockchain almost a year ago. Since then there has not been a lot of news. SWIFT can certainly buy whoever gets traction, but will face a cannibalization challenge as new entrants will be cheaper as well as faster. Cheaper payments will increase volumes so I envisage a future where SWIFT still dominates cross border payments but using Blockchain technology, with lower prices and increased volumes.

The back office guys are getting ready

In my core banking days, the SWIFT module was critical. It still is. However we can see the vendors, consultants and oursourcers getting ready for payments via Blockchain. This announcement by Ripple, Deloitte and Temenos is an example of an industry positioning around a possible new value chain.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.