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The blockchain is transforming the way businesses are conducted across the world. What will be its effect on SWIFT, a legacy network for communication between banks that has lasted for 43 years?
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) was founded in 1973 and has provided financial institutions a means to exchange information about transactions in a secure environment. A majority of banks worldwide use the SWIFT network for international interbank messages.
Prior to SWIFT, banks used telex for communications. Telex had inherent disadvantages - low speed, low security and lack of standardization (messages were in free text, rather than using standardized codes).
SWIFT was set up as a cooperative society by member banks to overcome these handicaps and has become the de facto body for creation of standards with respect to interbank messages.
This month Accenture and SWIFT have released a paper which looks at the use of Distributed Ledger Technologies (or blockchain technologies) in financial services.
The paper acknowledges the strengths of the blockchain – efficient information propagation, traceability, simplified reconciliation, trusted system and high resiliency.
However, the technology is not mature enough and certain key requirements – strong governance, data controls, regulatory compliance, standardization, identity framework, cyber defence and scalability have to be addressed.
According to SWIFT, its history of fostering industry collaboration, standards expertise and track record in security give it an edge in developing a blockchain platform for the financial community.
SWIFT has looked at blockchain solutions before.
In December 2015 Wim Raymaekers, Head of Banking and Treasury Markets at SWIFT, said that SWIFT was looking at changing correspondent banking settlements and possibly using blockchain technology.
SWIFT is also a board member of the Linux Foundation's Hyperledger project.
If SWIFT can adopt blockchain technology to reduce costs, improve security and communication times, it is possible that it can avoid meeting the fate of telex in interbank communications.
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