45-year old payment provider Swift just announced the launch of a new payment validation platform. The new platform aims to fight back against rising competition from fintech companies and blockchain-based projects, lowering costs and speeding up financial transactions worldwide.
Swift was founded in 1973 by a conglomerate of American banks. These banks were seeking a way to move money around the world more quickly and easily. Today, Swift is used by 2,500 banks worldwide and processes $200 billion every day.
In recent years, however, Swift has faced increasing competition from a growing number of fintech competitors. Inefficiencies within the Swift ecosystem have left it vulnerable to newer, more efficient payment technologies.
Startups like Revolut and TransferWise, for example, have chipped into Swift’s market share.
Blockchain technology is also posing a threat to Swift. One of the most promising startups from the blockchain space is Interbank Information Network (IIN), a blockchain-based project where banking information is shared on a distributed ledger. To date, more than 130 banks, including JPMorgan Chase and other major names, have signed onto IIN. With IIN, errors and compliance issues can be solved rapidly. With traditional payment systems, these issues can delay payments for weeks.
That’s why Swift wants to innovate. Swift has launched its own validation system to compete with fintech companies and blockchain startups. That validation system is currently going through a pilot, although it could be rolled out to Swift’s 10,000 customers in the near future.
Swift Is Testing A New Payment “Pre-Validation” System
In response to competition, Swift has announced the launch of a pre-validation payment system for banks.
This system is expected to speed up lengthy payment delays. Just like IIT’s system removes costly delays, so too will Swift’s pre-validation system.
With Swift’s new system, banks use an application programming interface (API) to check data from other banks. That data can include bank account numbers, for example, when a payment is initiated. The system checks these bank account numbers, verifies the legitimacy of these numbers, then validates the payment.
To be clear, Swift’s pre-validation system does not involve the use of blockchain; instead, it’s an API interface. There’s no mutually-distributed ledger. The API allows banks to access each other’s data on a bilateral basis. Banks choose to share data with each other.
10% Of Swift Payments Are Delayed Because Of Errors
Payment-related disputes are a significant issue with Swift. According to the Financial Times, approximately 10% of payments on the Swift platform are delayed because of errors.
The new system is expected to considerably reduce the costs banks incur to resolve problematic payments. It also speeds up the payment process for customers.
After adopting this system, banks could be expected to cut prices and compete more effectively with newer fintech startups.
Some analysts believe Swift’s API-based solution could be more viable than IIT’s blockchain solution. One analyst interviewed by the Financial Times believes Swift’s solution is superior because it tackles “exactly the same kind of issues as IIN” but could be rolled out more quickly, allowing Swift to take advantage of “scale and industrialisation” among its 10,000-plus members.
Swift Solves The Payment Problem Without Blockchain
Ultimately, Swift’s new pre-validation system aims to solve payment-related problems just like IIT’s system. However, IIT’s system depends on blockchain technology while Swift’s system depends on an API. The two achieve similar goals but in different ways.
It remains to be seen which system will be more successful in the long run – a blockchain-based system or API. Greater competition within the payments space, however, is good news for consumers.