The race to redefine cross-border finance

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In recent years SWIFT has faced three criticisms: that it is technologically backward, it is insecure, and it is not politically neutral

IN 1977 A string of 12 characters ushered in a new age of global finance. Until then a bank wiring money abroad needed to relay up to ten instructions on public phone lines, which were then typed into forms, taking time and causing errors. Then payments began to be facilitated by a code and secure network created by the Society for Worldwide Interbank Financial Telecommunications , a club of 500-odd banks. A surge in global trade and investment followed.

The system of correspondent banking through which cross-border payments flow works like air transport: when two faraway banks do not have a direct relationship, money travelling from one to the other stops over at banks in between. SWIFT provides the radio signal directing the money. The Belgium-based network, which is owned by its members, provides the standards and services that allow firms to exchange information on transactions.

SWIFT has gone some way towards placating its critics. It has bolstered its security defences, and its international governance, it says, reinforces its neutral status. In 2017 it launched SWIFT Global Payments Innovation , a network that allows banks to process wholesale payments faster and makes transfers trackable. It now accounts for three-quarters of SWIFT payments. Today 92% of these reach their destinations in less than 24 hours.

Yet fintechs so far play a minuscule role in cross-border payments. Data crunched by FXC Intelligence, a consultancy, forsuggest the share of cross-border payments by value going through SWIFT has remained broadly unchanged since 2019. The number of messages sent across the network has risen steadily . Ripple, by contrast, has struggled to gain traction. Last year it settled just $2.4bn in transactions.

 

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