Blockchain trial announced by money transfer service SWIFT

Bank payments organisation lends weight to financial services' blockchain interest

SWIFT, the provider of secure financial messaging service used by banks to manage payments, is investigating blockchain technology to help it reduce overheads and tighten security.

The SWIFT platform and accompanying tools and services are used by 11,000 banking and securities organisations, market infrastructures and corporate customers in more than 200 countries and territories, frequently to handle international money transfers.

Currently, cross-border transfers require monitoring accounts and tallying credit and debt figures at the end of the day. These activities impose a high administrative burden and account for much of the cost of transferring funds overseas. Now SWIFT has launched a proof-of-concept (PoC) to see if blockchain technology can allow reconcilliation to happen automatically and in real time.

A blockchain, or distributed ledger, is a secure, encrypted, immutable database that records every transaction ever made on it, providing an indisputable audit trail. Approval for a transaction is granted automatically via a consensus mechanism provided certain conditions are met, and data can only be added, not deleted or changed.

The SWIFT PoC, which will begin this month, will be built on the open source Hyperledger blockchain, with additional features to make it compliant with the financial industry"s standards. Rather than using a public blockchain, like bitcoin, the PoC will involve a private ledger with a limited number of participants governed by strict controls.

Head of R&D at SWIFTLabs at SWIFT Damien Vanderveken said: "SWIFT will leverage its strong governance, PKI [public key infrastructure] security scheme, BIC legal identifier framework and liquidity standards expertise to deliver a distinctive DLT [distributed ledger technology] PoC platform for the benefit of its community."

There has been a lot of interest in blockchain technology in the financial sector, from fintech startups looking to disrupt the industry to established global banks seeking to improve audit and efficiency. In May, Santander launched a trial of what it claimed is the UK's first international money transfer service powered by blockchain technology.

Santander believes savings of billions of pounds in transfer costs are possible using blockchain by simplifying the IT infrastructure and cutting out middlemen.

The bank also says that distributed ledgers can increase investor confidence in products whose underlying assets are opaque (such as securitisations) or where property rights are uncertain.

By tightening governance, blockchains have the potential to increase security. Last year a number of banks using the SWIFT service came under attack following phishing and malware campaigns which allowed the intruders to break into core systems via the SWIFT network. Millions of dollars were stolen from banks in Bangladesh and Vietnam and banks have been warned to improve their data governance procedures.