SWIFT – Political storms and new technology impact global dominance

Potential sanctions are threatened against Russia if it launches military action against Ukraine. A crippling range of measures is being considered, including disconnecting Russian institutions from using the International Society for Worldwide Interbank Telecommunication. (SWIFT)

As leaders worldwide evaluate the different options, what effect they would have and how efficient they would be, the fundamental issues businesses face when using SWIFT remain unresolved. For example, SWIFT has several significant problems regarding speed and cost transparency.

The current standardised method of SWIFT wire transfers is often very prolonged, and fees opaque and inconsistent. However, alternative solutions are rapidly evolving, and businesses should regularly check that they are optimising their SWIFT banking services to receive fair and transparent charges for the activities they undertake.

A safe, secure network utilised by businesses around the world

The SWIFT network remains the most effective global interbank network for secure, confirmed and standardised messaging. Banks, securities traders, asset management companies and other financial institutions use SWIFT’s vast messaging network to quickly, accurately, and safely send and receive information, such as money transfer instructions.

The increasingly global nature of business means that firms of all sizes need to deal with several banking partners spread across the world. SWIFT allows banks to automate payment instruction communications through the global SWIFT network. And banking clients are enabled to utilise online banking interfaces that generate payment instructions online and as straight-through-processing. (see Appendix 1)

Historically, institutions utilised SWIFT mainly for simple payment instructions. However, the network now sends messages for various actions, including securities trading, treasury, trade, and system transactions. 

The SWIFT network remains dominant in the market, but speed and transparency issues frequently occur. The current standardised method of wire transfers is often very prolonged. Many institutions complain that it takes hours or days to pass through different banking processes, often causing businesses delays and additional costs. Moreover, cross-border payments are expensive, opaque, and lack transparency when correspondent banking fees are applied.

Competing models and a bilateral Chinese and Russian development

While other services compete with SWIFT, such as the Clearing House Interbank System (CHIPS), Ripple and Fedwire, the globally dominant service remains SWIFT. Although, Russia and China have recently agreed to develop shared financial structures to deepen economic ties and reduce the dominance of SWIFT.

Both China and Russia have independent projects at various stages of development. For example, China launched the Cross-border Interbank Payment System (CIPS) in 2015, a separate clearing system with the RMB as the quote currency.

Challenging global dominance and the rise of de-centralised solutions

Any rival Chinese and Russian service to SWIFT is also likely to become popular with other countries that wish to trade with both countries but are inhibited by the US, including Iran.

In addition, tech-companies and multiple countries, including Russia and China, are also exploring the development of central bank digital currencies and other non-SWIFT payment mechanisms. Many blockchain firms are developing de-centralised solutions to replace traditional banking services, including SWIFT.

SWIFT launched its own innovative and upgraded service in response to the blockchain disruption, labelled GPI. (Global Payment Innovation)

However, the rapid growth in competitor distributed ledger solutions that enable transactions with minimal fees, rapid blockchain advancements could pose a significant threat to the future of cross-border funds transfer systems like SWIFT.  

Despite worldwide leaders using SWIFT as a geopolitical tool and regardless of the rise of alternatives to SWIFT, businesses should ensure they regularly compare banking services to receive fair and transparent charges for the activities they undertake. Specifically, clarify what SWIFT fees and charges the provider applies, check any foreign exchange rates used, and avoid making errors when completing transaction details. The banks charge to resolve these.

 [LAH1]Highly relevant point! Should this be the centerpiece and main topic of the article?

 [LAH2]Wouldn’t the conclusion rather be, that SWIFT are preparing themselves for a future without the need of a centralised coms platform?

 [LAH3]Should we round of with some specific recommendations on how to optimise fees? Not sure, what I think, but let’s discuss what we want the conclusion to be like.

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James Yerkess
Artikelen: 18
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