The Bankwatch

Tracking the consumer evolution of financial services

Finally someone in the community acknowledges Blockchain challenge for Banks

I have done a fair bit of research on Blockchain technologies as an alternative to SWIFT and that is really what we are talking about when it comes to international payments. This story caught my attention.

NEW YORK (Reuters) – Banks are unlikely to use distributed ledgers to process cross-border payments for now because of scalability and privacy issues, according to Ripple, one of the most prominent startups developing the technology

If we look at SWIFT it is no more than a messaging system that is accepted by banks to trust each other a payment has been made and to go ahead and debit/ credit each other using their nostro/ vostro accounts. No money changes hands with SWIFT. That clearing is old school using basically bank accounts that each bank hold with each other amongst the community of Banks who have together agreed to trust each other. Don’t get me wrong, SWIFT handles it well, but it is a messaging system.

What is Blockchain in this context then: it is a messaging system. It is the ability to provide a shared online record of messages that would disintermediate SWIFT. Always good to have competition and propose new more efficient or cheaper alternatives.

Blockchain is currently:

  1. Heavy and resource dependent
  2. Slow
  3. Lacks any method to provide financial clearing

On the third point, Ripple are giving it the old college try and more than anyone else. Other Blockchain applications are dependent on moving your money into bitcoin and moving that coin through a vendors bank account. Yes international transfers still need money to move, and archaic as banking is this is a truism. Show me the money in my account.

There is something there with Blockchain but to me it remains a solution looking for a problem, particularly in a Banking context.

Written by Colin Henderson

June 14, 2018 at 19:13

Posted in Uncategorized

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