Provider of secure financial messaging services SWIFT, is to begin trialling blockchain technology to help it reduce overheads and improve efficiency.
SWIFT's platform and services are used by 11,000 financial institutions and corporate customers in more than 200 countries. It is best known for its international inter-bank money transfer service
Most of the costs involved in cross-border transfers result from the need to monitor account balances and tally credit and debt figures at the end of the day. SWIFT has launched a proof-of-concept (PoC) to see if blockchain technology can allow database reconcilliation to happen automatically and in real time, reducing the administrative burden.
A blockchain, or distributed ledger, is a secure, encrypted, immutable database that records every transaction ever made on it, providing an indisputable audit trail. Approval for a transaction is granted automatically via a consensus mechanism provided certain conditions are met, and data can only be added, not deleted or changed.
The SWIFT PoC, which will begin this month, will be built on the open source Hyperledger blockchain, with additional SWIFT tools and features to make it compliant with the financial industry"s standards. Rather than using a public ledger, like the bitcoin blockchain, the PoC will build on a private ledger with a limited number of participants governed by strict controls.
Damien Vanderveken, head of R&D at SWIFTLabs at SWIFT said: "SWIFT will leverage its strong governance, PKI [public key infrastructure] security scheme, BIC legal identifier framework and liquidity standards expertise to deliver a distinctive DLT [distributed ledger technology] PoC platform for the benefit of its community."
There has been a lot of interest in blockchain technology in the financial sector, from fintech startups looking to disrupt the industry to established global banks seeking to improve audit and efficiency. In May, Santander launched a trial of what it claimed is the UK's first international money transfer service powered by blockchain technology.
Santander believes savings of £20bn in transfer costs may be possible using blockchain technology by simplifying the IT infrastructure and cutting out intermediaries.
The bank also says that distributed ledgers can increase investor confidence in products whose underlying assets are opaque (such as securitisations) or where property rights are uncertain.
By tightening governance, blockchains have the potential to increase security. Last year a number of banks using the SWIFT service came under attack following phishing and malware campaigns which allowed the intruders to break into core systems via the SWIFT network. Millions of dollars were stolen from banks in Bangladesh and Vietnam and banks have been warned to improve their governance.
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