Swift, the backbone of financial messaging, faces a tough question: Will blockchain technology replace the 53-year-old technology that the legacy banking system relies on?
With many blockchain-based infrastructures popping up, promising to be faster and cheaper for cross-border transfers, one could argue that this might be the case.
"As these blockchain rails get laid, there's just no need for legacy Swift solutions anymore," said Chris Maurice, CEO of Yellow Card, a U.S.-based stablecoin payments infrastructure provider.
However, Swift isn't standing still. It officially rolled out its new blockchain ledger in July, providing banks with a shared layer for tokenized deposits issued on their own ledgers. HSBC and Standard Chartered just recently completed the first live cross-border transaction on this new ledger. The transaction gave the cooperative a foothold in the world of 24/7 tokenized payment technology.
While the scale of the transaction dwarfs Swift's current processing power of more than 53 million financial messages a day for 11,500 financial institutions across more than 200 countries and territories, it highlights its prime advantage: the network effect.
According to Debo Sen, head of digital assets at Citi, blockchain technology may change the infrastructure beneath cross-border payments. Swift's massive network could make it one of the best-positioned organizations to connect the new systems.
"If anybody can pull it off, it's Swift because of the network effect it has," Sen said. "Swift is well-positioned. They have 11,500 banks connected to them. They understand how the banks work. The banks are familiar and comfortable."
The firm’s messaging system — a service estimated to have facilitated the movement of quadrillions of dollars since its inception in 1973 — does not itself hold or transfer customer funds. It sends the standardized instructions that allow banks to debit and credit accounts, often through chains of correspondent banks. It facilitated the transfer of an estimated $5 trillion daily, roughly $1.2 quadrillion to $1.5 quadrillion annually, of the total global payments market that McKinsey estimated at around $2 quadrillion.
While those processes can take one to five business days, depending on the banks, currencies and compliance checks involved, the actual payment instruction can reach a destination bank quickly. Jack Pouderoyen, head of digital asset strategy at Swift, said 75% do so within 10 minutes — even though the underlying transfer of funds can take longer depending on the banks, currencies and settlement systems involved.
Stablecoins and tokenized bank deposits seek to collapse some of those steps. They can move value over blockchain rails 24 hours a day, without relying on the traditional cut-off times, and correspondent-bank chains that remain common in the traditional cross-border banking system.
In fact, the shortcomings are significant enough that the G20 agreed on a timeline in 2020, calling on relevant financial institutions to make cross-border payments faster and cheaper by 2027, a target that will likely be missed. The G20’s Financial Stability Board (FSB) said in October that, despite progress, cross-border payments remained "too slow, too expensive, and too opaque."
While some blockchains could be positioning themselves as competitors to Swift, there is an important caveat to each of these two infrastructures. A stablecoin can move money directly from one wallet to another. Meanwhile, much of legacy finance still moves them from one bank account to another.
Naveen Mallela, digital payments lead at Standard Chartered, said that this distinction helps explain why blockchain doesn't automatically eliminate the need for banking networks such as Swift. "A majority of payments continue to be account-to-account," he said. "What Swift is solving for is how to make that faster, cheaper, and available 24/7."
Stablecoins are well-suited for wallet-to-wallet transfers, Mallela said, while tokenized deposits enable account-to-account settlement, which still accounts for the vast majority of cross-border payment value.
"Different instruments will coexist, different infrastructures will coexist," he said.
However, that coexistence may create another layer of problems: fragmentation.
Banks are developing proprietary ledgers, stablecoin issuers operate across multiple blockchains, and tokenized deposit systems may use entirely different infrastructure. What that means is that instead of replacing one global network with another, the industry might end up with many different networks that will need to communicate with each other.
Swift's Pouderoyen argued that this is exactly where Swift could retain its advantage.
"Every network has its own rules, and without a common orchestration layer, banks face a real cost translating between them," he said. "What the market needs is a shared interoperability layer built on infrastructure they already trust." Banks can plug into Swift's blockchain ledger through their existing Swift connectivity, without rebuilding their infrastructure from scratch, he added.
However, Yellow Card's Maurice was unconvinced. If banking giants built a blockchain system capable of settling transactions directly with counterparties, Swift risks becoming an extra layer rather than an essential infrastructure.
"If JPMorgan is using blockchain to settle transactions, they don't need Swift," he said. "If Swift is using blockchain, banks don't need JPMorgan. Who displaces whom first? That's a little bit up in the air," Maurice said.
Large banks seem not to be taking sides, but rather preparing for a global system in which neither side completely wins.
Citi, for example, moves $6 trillion daily, mostly through SWIFT but also through many other networks, said Sen. Citi Token Services already processes billions daily. She frames Citi's strategy not as a bet on Swift specifically, but as a bet that clients will need multiple systems working simultaneously.
"Clients will need multidimensional, interoperable payment systems," she said.
Andreas Kubli, head of digital assets at UBS, one of the 17 banks in the pilot, echoed that.
"The greatest value will come from connecting them seamlessly through common standards and shared infrastructure," he said. A mixed ecosystem, not a single winner, was the most likely outcome.
What that boils down to is who gets paid to connect the growing number of systems on which money moves.
"Unless they're willing to change their business model and accept that the movement of money is not really something you can charge much for anymore," Yellow Card's Maurice said, adding that "they're going to have a really hard time competing in the long run."
But at the end of the day, it's all about clients and moving their money in a system where they don't care how the transaction is handled on the back end.
Swift's Pouderoyen said success looked like a world where technology became invisible. "End-users can move any regulated form of money, anytime and anywhere, without needing to think about the underlying technology," he said.