Corporate Finance, DeFi, Blockchain, Web3 News
Corporate Finance, DeFi, Blockchain News

Bye-bye SWIFT

by Ilias Louis Hatzis.

Created in 1973, the Society for Worldwide Interbank Financial Telecommunication (Swift) developed a secure network to send and receive information about financial transactions. Today it's used by more than 11,000 financial institutions in 212 different countries. More than $5 trillion go through Swift's network every day. As you can expect, several projects and companies around the world are trying to unseat Swift.

With cryptocurrencies and specifically stablecoins, Swift has faced some initial competition that will only get intense as they mature. A couple days ago, Bank Frick, a European bank, said bye-bye to Swift. The bank in Liechtenstein will now use the USDC stablecoin, to power cross-border transactions. Cryptocurrencies and peer-to-peer banking offer fast alternatives to the Swift network, and could help build a world currency unfettered by cross-border barriers.

Swift is currently the primary service provider when it comes to cross-border payments, remittances, clearing and settlement. It has a monopoly. If a bank needs to carry out cross-border business, the principal requirement is to access the Swift network, or to find another bank that's already connected.

International transfers are slow, expensive and uncertain. The actual movement of money takes a few days. There is a complex rebate system among banks, and senders don't know exactly how much the receivers will get, as the banks take a cut. Undoubtedly, Swift has improved its entire payment and settlement system over time, through numerous initiatives, including the innovative global payment initiative (GPI).

Bank Frick added support for the USDC stablecoin, allowing its clients to deposit, as well as buy and sell, USDC using their bank. By adding USDC, the bank will enable customers to process USD payments quickly, compared to the traditional payment rails using Swift. Since its founding in 1998, Bank Frick has revamped into one of Europe's preeminent blockchain banks, offering crypto trading and custody for institutional clients miners and mining firms. The bank ventured into the crypto space in 2018.

Coinbase and Circle launched USDC in late 2018. The coin is designed to be pegged to the US dollar, which gives banks an opportunity to capitalize on both the transfer speed of digital assets and the reliability of USD. Since the start of the year, USDC has added over $230 million to its market cap, bringing it to around $750 million.

The payments industry has now began to realize that stablecoins offer a way to rethink existing business models, services and even the nature of money itself.

At this time, stablecoins are the fastest growing segment of crypto, surpassing $11 billion in market cap, doubling in size since the beginning of the year. In just two months, stablecoin assets in circulation grew by 70%.

Stablecoins may sound like something simple, I mean they're just digital versions of the dollar, yet they represent a massive opportunity. They offer a huge improvement, orders of magnitude better than existing systems, when it comes to moving dollars versus using a bank. They're cost effective and fast, as transactions are settled in minutes, instead of days. While trading has been the primary driver for their growth so far, their future will be driven by the superior user experience they offer.

They will be become the defacto cryptocurrency on ramps and off ramps. A January, 2020, survey by Bank for International Settlements showed that over 80 countries were working on CBDCs. Banque de France will begin interviewing applicants to work with it on experiments in the use of a digital euro in interbank settlements. These experiments will also explore integrating central bank digital currency (CBDC) into the clearing and settlement of tokenized financial assets.

Libra recently pivoted away from it’s own currency, to a series of single-currency stablecoins, each tied to a different fiat currency. Libra won’t be pegged just to the USD, rather it will be pegged across many of the world’s significant currencies. We’ll see dramatic improvements in the on-ramps and off-ramps for cryptocurrency and Libra will likely emerge as a major player in the space.

The advantages of using the stablecoins compared with the established payment systems can be reduced to a few simple points. When you look at SWIFT from the banking and financial institutions’ perspective the argument for continuing to use them is based on a “better the devil you know” way of thinking and a prevailing conservatism in the financial world.
The rivalry between the old and the new is just getting started and it will decide how cross-border payments will be handled for decades to come.

While stablecoins first originated in the world of cryptocurrencies, they have now become an independent concept of their own. They are a moving target with tremendous potential to fundamentally change the financial system. It remains to be seen whether stablecoins are going to coexist, complement, or takeover existing payments.

Given the antiquity of SWIFT and the lack of access to traditional institutions in many developing countries, there is a possibility that stablecoins could just become the first blockchain product that’s actually used by a large number of people. Truth be told, stablecoins are faster, cheaper and more reliable than Swift. The only problem they have is that they're not yet been widely adopted.

But it's safe to say that the revolution is already in progress, and in the years to come, the market for digital dollars will grow exponentially, as more regulated entities like Bank Frick will start to adopt stablecoins.

Ilias Louis Hatzis
Ilias Louis Hatzis
Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG.
He writes the Blockchain Weekly Front Page each Monday.I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
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I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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Mardi 16 Juin 2020