With currency becoming digitized in large parts of the world, Swift seeks an opportunity to tackle one of the biggest challenges on the horizon — ensuring different projects aren't stuck in a silo.
"Once people realize the value of the asset they are creating, we can help them avoid being a 'digital island,' " said Tom Zschach, chief innovation officer at Swift.
Central bank digital currencies have been developing at a slow burn for years, but have garnered more attention lately as
The Society for Worldwide Interbank Telecommunications, which provides messaging to support cross-border payments for more than 11,000 financial institutions, is engaged with central banks and commercial institutions to support CBDCs and other digital currency options. It is also developing an artificial intelligence platform to execute payments that rely on its network.
"We don't have a horse to bet on, we're not advocating for the creation of any digital asset," Zschach said. "But Swift can help with the communication and with the interoperability of the digital asset."
Swift is preparing its network for several types of digital payments, including CBDCs, stablecoins and tokenized bank deposits.
CBDCs are a digital form of currency issued by a central bank. CBDCs are designed partly to speed transactions between large banks or governments, or to improve financial access for underbanked consumers in a financial services environment that relies less on cash. Stablecoins are a type of cryptocurrency that is pegged to traditional currency, such as a dollar or euro, as were developed to take advantage of decentralized finance while avoiding the volatility of mainstream cryptocurrencies like bitcoin. And
"We think Swift can play a big role in bringing the banking industry into new areas of payments," Zschach said.
Swift's experiments with financial industry partners are designed to demonstrate how CBDCs and other digital assets can move through the existing payments infrastructure. Swift is working with Capgemini to support CBDC-to-CBDC payments between different distributed ledgers with real-time settlement. This means blockchain networks can be interlinked for cross-border payments, Zschach said.
More than two dozen central and commercial banks are involved in the work, including Banque de France, Deutsche Bundesbank, HSBC, Standard Chartered, UBS and Wells Fargo.
Swift has also worked with Citigroup, Clearstream and Northern Trust to test more than six dozen forms of international payments, market issuance and secondary market transactions involving tokenized bonds, equities and cash. The technology behind these projects relies on enhanced capabilities, built on the organization's Global Payments Innovation, or gpi. Swift's gpi system allows corporations to execute and track payments involving all of their banking partners through a single source.
Swift is additionally building an artificial intelligence platform in partnership with AI software firm C3.ai, Red Hat's OpenShift container platform and software-defined memory from the technology company Kove.
Swift's goal for the platform is to improve anomaly detection and products such as Swift's payment controls and pre-validation. Swift is also hoping to enable automatic corrections for errors and optimize routing options.
As digital assets come to the fore, the need to proactively and more accurately tackle historical challenges in global payments, such as network outages, missing data and fraudulent transactions, becomes more pertinent, Zashach said.
"Instant means real-time, and frictionless means right the first time," he said. "Using pre-validation to detect errors or fraud will not only make things faster but raise confidence in the overall community."
CBDCs and other digital assets have also drawn the attention of established payment firms and organizations.
And last week, the Universal Digital Payments Network was launched in Davos at the World Economic Forum. UDPN, which is designed to promote interoperability for digital assets, has been in development for more than a year, and includes banks such as Standard Chartered, HSBC and Deutsche Bank, as well as technology firms and government agencies. UDPN exists alongside other projects designed to promote CBDC interoperability, such as a
"Having clear regulation and governance is key but so is making sure those who are building the new infrastructure are working together to ensure that it's interoperable, that it has all the right operational controls, and that we can add more capabilities and continue to innovate as needed," said Ricardo Correia, head of digital currencies at the blockchain firm R3.
The future of payments will be a mix of CBDC, stablecoins, cryptocurrency and other payment options, which lends itself to collaborations among stakeholders, said Anthony Welfare, senior advisor for CBDC and Global Partnerships at Ripple, who has worked with the U.K. government on building use cases for a digital dollar.
"Unless there is one technology adopted everywhere, these will all need to interoperate with each other, in a number of ways," Welfare said. "By working together as an ecosystem, with standards for payments, we will be able to limit the interoperability challenges and provide simple and easy solutions for those cases which will still require interoperability."
