Home / Capital & Crypto / Blockchain Will Absolutely Displace SWIFT

Blockchain Will Absolutely Displace SWIFT

Last Updated March 4, 2021 4:47 PM
Joseph Bradley
Last Updated March 4, 2021 4:47 PM

Sometimes it is hard to understand just how little finance institutions actually understand blockchain technology. While blockchain is certainly not a panacea for financial institutions, it’s pretty close. And SWIFT is certainly no match.

In a recent article featured on the website American Banker , the ability for blockchain tech to render an antiquated settlement and messaging technology called SWIFT was discussed. Apparently the mere mention of blockchain displacing SWIFT was shocking to bankers. That is just how ready for, forgive me for dropping this word, disruption these groups are. And further, the “SWIFT replaced by blockchain” conversation really lends an interesting bit of understanding to adoption hurdles.

Let’s start with SWIFT. What is it?

“SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications. It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.”

So this system that has created a hullabaloo over at American Banker is just an encrypted messaging system with some (not so) fancy codes that identify which institutions are communicating with each other? The answer is yes.

As noted via Investopedia , “As powerful as SWIFT is, keep in mind that it is only a messaging system—SWIFT does not hold any funds or securities, nor does it manage client accounts.”

When I first read this article, to be frank, I was a little confused. There seemed to be a rather large disconnect between the author’s understanding of the technology, his target audience and the implications of utilizing blockchain within this context. Once the troll in me abated, I started thinking about the larger, more important meaning of this article.

We take it for granted that we so easily chat about Slock functionality, public vs. private ledgers, or “hard forks.” For the larger world of finance, and in particular banks, the value chain in blockchain technology is not self-evident. Take a moment and reflect on the definitions of the SWIFT system above. How is this even a conversation, right? It seems as though blockchain could not only replace SWIFT but also increase the security, expediency, and accuracy of the system. Nonetheless, bankers were evidently distraught at the American Banker author’s suggestion that one day SWIFT system could be displaced.

In general, people react poorly to the unknown. Particularly within a system, namely finance, where understanding ownership and information pathways are key. We are in a new era whereas old stodgy and historically opaque boy’s clubs are becoming crystal clear. SWIFT may have been a huge value-add for banks a mere 20 years ago (amazingly that era accounts for significant growth within the SWIFT system), it is no longer.

Technology is pulling down the black curtains and dusting the shelves. Technology is creating so much linearity in processes that obfuscation is becoming more difficult. As consumers come to understand that the purpose of financial jargon was to justify additional fee structure, we will see these fees erode. This happened with attorney’s after instruments like Legal Zoom   made it much harder to charge $550 per hour from the annals of legal libraries.

Take the time to read this article.  It is revealing as to why blockchain, as much sense as it may make to those who study and appreciate it, is just now being rolled into financial institutions. The best technology ever created is useless without an audience. Next time you see a banker, pat them on the back and send them a link to CCN.com.LA. The revolution continues.

The revolution continues.