The battle royal between incumbent infrastructure consortium Swift and challenger Ripple may be cooling after years of heated disagreement, writes Chris Skinner.
Almost every day, there is an announcement of a new payments innovation. From the success of the likes of Klarna, Stripe and Square in retail payments to the growth of new payment mechanisms such as Ripple and JPMorgan’s internal settlement engine, the JPM Coin, and the launch of digital currencies from Bitcoin to Facebook’s Libra, everyone seems to have a good idea about how to change the payments landscape.
Investors believe in these companies too, as many of the largest – spawned in the internet age and worth billions of dollars – are focused on innovations in payments. A notable breakthrough is Adyen after its initial public offering (IPO) in June 2018, valuing the firm at $8.3bn then and now at almost $20bn just over a year later.
A recurring discussion amid all this activity is the role of Swift, the interbank network for cross-border messaging. Dating back to the 1970s, the organisation today draws fire for its age. Yet it has never sat on its laurels; it is, after all, a co-operative network that represents more than 11,000 institutions.
Speedy transactions
Much of the criticism about how Swift works is misplaced. For example, the clearance of funds through the Swift network can take an inordinate length of time (or so it appears). I recently received a cheque from an US client, for example, which took two months to clear and cost a fortune.
Some Swift detractors contrast this with the speed of distributed ledgers and blockchains – such as Litecoin, which processed a single transaction between two users in April 2018 valued at nearly $100m. The transaction took just over two minutes to process for a cost of $0.40. However, the blame for slow clearing of payments and transactions lies not at Swift’s door, but with the structure of banks.
A decade ago, I heard many network organisations claiming that Swift would be replaced; a decade later, this claim is still being repeated. Today, though, the conversation may be changing.
In 2009, Swift processed 3.76 billion messages per year; in 2018, it managed 7.8 billion – an increase of 11% over 2017 and 56% over the past five years. That’s about 31 million messages a day. Nevertheless, there has been a lot of sabre-rattling to challenge the organisation – particularly from blockchain start-up Ripple, whose CEO, Brad Garlinghouse, is regularly quoted in the media as saying Swift has passed its sell-by date.
In an interview as recently as June 2019, speaking to Bloomberg, for example, Mr Garlinghouse said: “What Ripple is executing every day is to take over Swift. Currently, we’ve signed up more than 100 Swift-enabled banks that are now using the Ripple technology. The technology used by the banks today that Swift developed years back hasn’t really evolved or even kept up with the current market.”
Swift innovation
This is incorrect, however, as Swift launched a new service called gpi (global payment innovation) in 2017 to address these issues. Swift gpi has more than 500 banks on board and claims an average of five minutes to process a cross-border payment – that is definitely getting faster. In mid-2019, the organisation trialled a new instant payment processing service on gpi with 17 banks in seven countries: Australia, China, Canada, Luxembourg, the Netherlands, Singapore and Thailand. The trial showed that a transaction could be processed from Australia to Singapore in just 13 seconds, while the longest transaction took 25 seconds. Swift is also not ducking the blockchain dialogue but is partnering with R3 Corda for the gpi Link gateway.
This could be why the recent hire by Ripple of former Swift executive Marjan Delatinne as global head of banking is a telling development. After the critique from Mr Garlinghouse, I read an interview with Ms Delatinne in which she said Ripple is “not replacing Swift” but instead “can be very complementary”. Her explanation is that Swift is just dealing with financial messaging and tracking rather than settlement, which is what Ripple claims to offer.
It will be interesting to see how the battle between Swift and Ripple pans out, as it has been ongoing for several years. Now, at least, it seems the diplomatic olive branch has been offered.
Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.
