SWIFT has announced the launch of a Proof of Concept (PoC) to explore whether distributed ledger technology (DLT) can be used by banks to improve the reconciliation of their nostro databases in real time, thus optimizing their global liquidity.
Under the current correspondent banking model, banks need to monitor the funds in their overseas accounts via debit and credit updates and end-of-day statements. The maintenance and operational work involved represents a significant portion of the cost of making cross-border payments. This PoC will test whether distributed ledgers may be able to help banks reconcile those nostro accounts more efficiently and in real time, lowering costs and operational risk.
As part of SWIFT’s global payments innovation (gpi) initiative, which seeks to deliver a new standard in cross-border payments, the PoC was scoped in collaboration with leading correspondent banks. Member banks can apply to participate in this PoC, set to launch in early 2017.
“Whilst existing DLTs are not currently mature enough for cross-border payments, this technology, bolstered by some additional features from SWIFT, may be interesting for the associated account reconciliation,” says Wim Raymaekers, Head of Banking Market and SWIFT gpi at SWIFT. “This PoC gives us the opportunity to test DLT and determine if it can be applied to this particular use case.”
The POC will deploy open-source Hyperledger technology, and combine it with key SWIFT assets to bring it in line with the financial industry’s requirements. Using a private blockchain in a closed user group environment, with specific user profiles and strong data controls, user privileges and data access will be strictly governed.
“SWIFT will leverage its strong governance, PKI security scheme, BIC legal identifier framework and liquidity standards expertise to deliver a distinctive DLT PoC platform for the benefit of its community,” said Damien Vanderveken, Head of R&D, SWIFTLabs and User Experience at SWIFT.
The gpi was launched in December 2015 to deliver a new standard in cross-border payments. With more than 90 banks signed up, representing more than 75% of SWIFT’s cross-border payments traffic, the initiative has seen tremendous industry support and is set to go live in early 2017.