SWIFT—the network banks use to exchange cross-border payment messages—is moving beyond messaging to pilot a shared-ledger platform aimed at faster, lower-friction cross-border settlement. We asked KPMG’s Eamonn Maguire, managing director in the customer and operations financial services practice, and his colleague Brian Consolvo, a principal in the advisory practice, to explain what this shift looks like in practice: who’s likely to use it first, how it fits alongside existing payment rails, what a sensible pilot looks like, and the risks and roadblocks banks should plan for. Their answers keep it practical for leaders weighing if—and when—to engage.
What did SWIFT actually announce, and why should bank leaders care now?
SWIFT announced plans for a blockchain-based payments platform for digital assets to be constructed, through partnership with Consensys, leveraging smart contracts for faster payments and interoperability with existing legacy rails. Initially, it appears the initiative will focus on enabling 24/7 cross-border payments. Following the passage of the GENIUS Act, U.S. banks have started to explore where stablecoins fit into their existing business models given the fact that stablecoin payments can be made anywhere in the world for as little as a few pennies and can settle in a matter of seconds. Given that SWIFT is the backbone for international payments, stablecoins offer a lot of potential to work alongside existing payment rails.
Which types of banks and client segments are most likely to use this first?
Likely first-time users will be large international banks, perhaps those that facilitate a lot of cross-border payments and remittances that are currently facilitated through SWIFT.
How would this sit alongside today’s cross-border payment processes—add-on or replacement?
Initially, it is likely to be an add-on until the benefits are truly realized, and risks associated with stablecoin payments can be further mitigated. In the meantime, other token-based payments will continue to advance and compete with SWIFT’s new blockchain-based payment system.
What’s a realistic first pilot for a regional bank, and what would success look like in year one?
It will depend on the size of the regional bank as many of them do not use SWIFT for international payments and instead rely on correspondent or clearing banks. For those that do use SWIFT, cross-border payments are a likely pilot for the new blockchain-based payment system. Success in year one for a regional bank would likely be a reduction in consumer costs for these SWIFT payments and achieving near-instant, 24/7 settlement.
What are the biggest adoption hurdles—technology, operations, risk, or legal—and the simplest ways to clear them?
The biggest adoption hurdle with any blockchain-based payments system will be education on how this technology works and understanding how it fits into the existing payment ecosystem. Additionally, stakeholder groups across the SWIFT organization will need to thoroughly understand the inherent risks that come with blockchain technology, including management of private keys, transaction monitoring, KYC/AML, etc. Most institutions will navigate through three main phases to address these hurdles:
- Initially, it will require banks to understand the impact to messaging on the legacy SWIFT rail, the likely effect on existing payments transactions, the availability of emerging replacements for SWIFT, and the role the bank will need to play in the future.
- As SWIFT readies its new platform, banks may want to run parallel transaction messaging on alternative or legacy platforms to validate the veracity of executed transactions, and to confirm the robustness of SWIFT related controls.
- Finally, development of an open, yet controlled, architecture and tested controls will be necessary for the full implementation, or the application of alternative payments platforms.
How should banks explain the benefits and limits to corporate clients without overpromising?
In the case of SWIFT, they need to communicate the benefits of faster payments with settlement times similar to stablecoin payments and a significant reduction in costs. However, as the almost exclusive conventional payments platform for inter-bank payments, it will remain challenged on cost from emerging players and might not offer the same lower cost proposition.
From what you’re seeing, do banks actually want this, and what would change skeptical minds?
Originating and receiving banks will want this; intermediate banks could be disrupted by this and possibly disintermediated, especially in cross border payments. In the fallout from this, certain smaller institutions more frequently playing as an intermediary between sending and receiving banks might not want this. Disintermediation, faster timing, and pressures to reduce costs will persist and will require banks to re-confirm and update their proposition, corresponding strategy, and whether to exit or stay the course.
If a bank isn’t ready to pilot, what two or three prep steps should it take this quarter?
Join as observers, understand the alternatives in the marketplace, reassess the market proposition in payments and payment related services, and confirm alternative business strategies and cases.
