SWIFT has announced that 22 additional global banks have joined its Hyperledger-based blockchain proof of concept (PoC) network, designed to validate whether the technology can help banks reconcile their international nostro accounts in real time and drastically reduce costs in cross-border payments.
Banks and financial institutions in Asia have the potential to trim operating expenses if they successfully implement blockchain for payments, securities trading, trade finance and record keeping. Blockchain could reduce banks’ infrastructure costs worldwide by $15-$20 billion a year by 2022, according to global law firm White & Case.
The PoC is part of the SWIFT gpi (global payments innovation) service, the new standard for cross-border payments that combines real-time payments tracking with the speed and certainty of same-day settlement for international payments.
“We are very encouraged on the adoption rates and the payments traffic of the SWIFT gpi service, only six months after it went live,” said Anurag Bajaj, Managing Director and Global Head of Banks, Transaction Banking at Standard Chartered Bank. “Standard Chartered has been involved in the gpi initiative as a pilot bank and a founding member in its vision group. The work on the DLT (Distributed Ledger Technology) PoC will allow us to continue improving on the cross-border payments experience for our clients by making our internal processes around the critical step of NOSTRO reconciliation, highly efficient.”
The banks that have recently joined the PoC include: ABN AMRO Bank, ABSA Bank, BBVA, Banco Santander, China Construction Bank, China Minsheng Banking, Commerzbank, Deutsche Bank, Erste Group Bank, FirstRand Bank, Intesa Sanpaolo, JPMorgan Chase Bank, Lloyds Bank, Mashreq bank, Nedbank, Rabobank, Société Générale, Standard Bank of South Africa, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, UniCredit and Westpac Banking Corporation.
These banks will test and validate the PoC’s blockchain application, currently under development by SWIFT and a group of six founding banks that launched the PoC earlier in the year. Working independently of the founding banks, the 22 institutions will act as a validation group to further test the application and evaluate how the technology scales and performs.
“Collaboration is the cornerstone of innovation,” says Wim Raymaekers, head of Banking Markets and SWIFT gpi at SWIFT. “This new group of banks allows us to greatly extend the scope of multilateral testing of the blockchain application and thus add considerable weight to the findings. We warmly welcome the new banks and look forward to their insights.”
Launched in January 2017, the PoC aims to help banks overcome significant challenges in monitoring and managing their international nostro accounts, which are crucial to the facilitation of cross-border payments. Currently, banks cannot monitor their account positions in real time due to lack of intraday reporting coverage. As such, the PoC recognizes the need for banks to receive real-time liquidity data in order to manage funds throughout the business day. At its core, the PoC builds on the rulebook defined by SWIFT as part of the recently published intraday liquidity standard.
“The potential business benefits ensuing from the PoC are clear,” says Damien Vanderveken, Head of R&D, SWIFTLab and UX at SWIFT. “If banks could manage their nostro account liquidity in real time, it would allow them to accurately gauge how much money is required in each account at any given point, ultimately enabling them to free up significant funds for other investments.”
In developing the PoC, SWIFT is leveraging the recently released Hyperledger[i] Fabric v1.0 technology, and combining it with key SWIFT assets, to ensure that all the information related to nostro/vostro accounts is kept private and seen only by the account owner and its correspondent banking partner. The PoC application will use a private permissioned blockchain in a closed user group environment, with specific user profiles and strong data controls. User privileges and data access will also be strictly governed.
Moving forward, the PoC blockchain application will undergo testing over the summer months, with the results scheduled to be published in September and presented at Sibos in Toronto in October.