SWIFT is set to develop its own blockchain to enhance transaction speed among global banks, sparking discussions about its competition with the rapid advancements of stablecoins.
Summary
- SWIFT collaborates with leading U.S. banks to create a blockchain ledger for expedited cross-border payments.
- This initiative arises as stablecoins approach a $300 billion market valuation, urging banks to adapt swiftly.
A recent article from the Financial Times reveals that SWIFT is looking to compete with the rapid rise of stablecoins by launching its own blockchain ledger.
The organization is planning partnerships with major U.S. banks, including Bank of America, Citigroup, and NatWest, to establish a shared digital ledger for transactions involving tokenized products, such as stablecoins.
This blockchain ledger aims to facilitate quicker cross-border transactions and validate them through smart contracts on-chain.
Incorporating blockchain technology could significantly transform a cooperative entity like SWIFT, which currently facilitates cross-border payments for over 11,500 banks and financial institutions globally.
During the development of this digital ledger, SWIFT will collaborate with Consensys to create a test prototype, which will be trialed with banks to determine the initial transaction offerings. Earlier this month, SWIFT began testing blockchain messaging using Consensys’ Ethereum layer 2, Linea.
Recently, banks and payment organizations have shown increased willingness to adopt blockchain technology in response to the swift progress of stablecoins. According to DeFi Llama data, stablecoins are nearing a $300 billion market cap and recently achieved an all-time high.
Currently, Tether’s USDT represents 58.7% of the overall stablecoin market, boasting a market cap of $174.3 billion.
In July, the U.S. government enacted stablecoin legislation aimed at regulating the market, prompting banks like JPMorgan Chase and Citi to investigate the launch of their own U.S. dollar-backed stablecoins.
SWIFT and other banks embracing blockchain technology
SWIFT is not alone in exploring blockchain for quicker transaction processing. Traditional banks face challenges due to the slower processing times of conventional payment systems, which can take days, while blockchain can accomplish the same in mere minutes.
Stablecoins pose a risk to traditional banks by providing a faster, cheaper, and more efficient money transfer alternative compared to established banking systems. Linked to fiat currencies like the U.S. dollar, stablecoins merge the reliability of traditional currency with blockchain’s speed and global reach.
This makes stablecoins appealing for payments, remittances, and settlements, allowing users to bypass the slow and costly banking infrastructure, reducing reliance on intermediaries like SWIFT.
Recently, Qatar National Bank announced it would utilize JP Morgan’s Kinexys blockchain for processing its USD payments, enhancing client transaction speeds and providing continuous service availability.
“We can guarantee payments as fast as in two minutes,” said Kamel Moris, executive vice president of transactional banking at QNB. “It’s a treasurer’s dream.”
