Cryptocurrencies based on blockchain technology gained clout among the millennials because of the promise they brought for a better tomorrow. One of the primary reasons behind the popularity of blockchain systems is the decentralized ledger technology that disrupted traditional banking systems. Blockchain made a great case in front of the millennials who were tired of monopolistic banking structures.
While cryptocurrencies disrupted the traditional markets, blockchain had much wider applications. The most apparent threat that blockchain presented was to the SWIFT technology that banks across the world use for cross-border fund transfers. Recently, SWIFT was under a strict scanner when reports of frequent cyberattacks came to the surface. However, SWIFT still remains one of the major players in cross-border fund transfers because, in 2015, it facilitated transactions worth $150 trillion.
But several industry experts have opined that the popularity of blockchain means this is the appropriate time to disrupt SWIFT because the technology is old, non-flexible, and prone to cyberattacks. Blockchain-based platforms connect banks directly in a decentralized fashion, which makes them safe against cyberattacks.
One such platform Ripple is already gaining clout which is apparent from the fact that it has signed 75 banks from all over the world now. Consumer awareness about sensitive data is constantly rising which has put the banks under tremendous pressure. They must now find ways to provide efficient and safe systems for fund transfers.
Thus, we are set to witness the rise of blockchain technology in the banking world. Other than Ripple, some of the major banks have developed their own systems backed by blockchain for cross-border fund transfers. But what does it mean for SWIFT? Let’s find out in this article.
Before moving any further, we must know what is SWIFT and the reason behind its popularity with banking institutions. So, SWIFT stands for “Society for Worldwide Interbank Financial Telecommunication.” This means that SWIFT is used to communicate the details of financial transactions concerned with cross-border fund transfers.
We can say that it is a messaging app used by banks around the world. Each entity enrolled with SWIFT has its own SWIFT code. The platform was founded in 1973 by a Belgian company called Telecommunications.
What makes SWIFT so desirable is that it boasts 11,000 financial institutions around the world that are enrolled with it. This means that millions of transactions pass through this network daily. However, recent events of cyberattacks and the rise of blockchain-backed platforms have posed a question mark on the reliability of this network.
SWIFT and Blockahin are not too far from each other on the technology spectrum. Both these platforms possess a lot of technological similarities. Therefore, it is only wise for SWIFT to understand blockchain technology and try to catch up with the changing world.
In fact, in January last year, a consortium of banks announced that SWIFT has a proof of concept to develop its own blockchain network. This process would start by testing the reconciliation of databases for cross-border fund transfer.
Fortunately, this objective was met in August last year. However, things are not as easy as it looks for SWIFT. The CEO of SWIFT stated that shifting to a blockchain network would mean that the banks will have to make significant changes to their infrastructure. This comes at a time when most banks have already invested in an infrastructure that supports a centralized database.
The most significant differences between the two technologies were highlighted when two competing conferences were held by Ripple and SWIFT in June 2019. This was the time when SWIFT CEO had compared the blockchain enthusiasm to the 17th century “Tulip Mania.” However, he failed to make any comments on the transition of his platform to the blockchain system.
It is quite shocking that a system that was robust a few years ago is suddenly under the scanner. SWIFT was never under public scrutiny because the general population rarely concerns itself with the matters of payment processes. However, with recent events of cyberattacks coming to light, the credibility of SWIFT networks has been questioned.
Banks are now realizing some of the fundamental flaws with this outdated system. For starters, compared to the blockchain, SWIFT is more prone to cyberattacks. This was realized when the world witnessed the first attack on the SWIFT network of the central bank of Bangladesh, which resulted in a loss of $81 million.
But why are hackers after the SWIFT network? The answer to this is based on ethical principles. The hackers have a long-standing problem with the monopolistic banking structures. Moreover, hacking into a centralized system of networks is quite easy for seasoned hackers. They just have to break into one data center to get out with millions of dollars.
The other principle war that hackers are fighting is that of transparency. It is not news that banking institutions are quite secretive about their transactions. The ledger of transactions is not available in the public domain.
Therefore, there is too much power concentrated in a few hands. All of these reasons put the SWIFT networks under constant threat. If banks do not upgrade their infrastructure and shift to the blockchain, they may have to take a huge blow in the near future.
Blockchain is everything that SWIFT aspires to be in the modern world. First of all, blockchain has a decentralized system, which makes it protected against cyberattacks. This is because there is no single database to hack.
Additionally, a decentralized mechanism means that no single entity can control or manipulate the entire system. Moreover, storing and delivering data on nodes means that blockchain-backed systems are much faster. For example, Ripple can facilitate a transfer within seconds as opposed to SWIFT which takes 5 business days.
Today, as the blockchain gains massive popularity, it is pertinent to note that the popularity is with the general public and not powerful institutions. What works in favor of SWIFT is that it still has a lot of banking institutions as its clients.
However, message-based sharing of information about financial transactions has seen a rapid decline. But SWIFT for Corporate Solutions has seen a rapid rise within the industry. Therefore, an alternate source of revenue will definitely keep SWIFT in business and give them an opportunity to come up with a system that could rival blockchain.