Over the last few years, there has been a steadily increasing interest in blockchain technology. This interest was initially focused very much on bitcoin, the cryptocurrency that still gains as much attention for its increasing value and links to cybercrime as it does for its technical underpinning. Over the last 18-24 months though, the attention of the fintech sector has been focused much more on blockchain, the technology on which bitcoin depends.
So, where might blockchain have an impact on corporate treasury? One area is around international payments. International payments are today a frustrating experience. They are slow, expensive and hard to track. A typical payment will today cross several different proprietary ledgers as it moves from the payer to the recipient. Multiple banks and clearing systems are often in play. This is the correspondent banking landscape that has exploded in terms of volume with the trend towards globalization. But international payments can still be said to be in the pre-Internet, pre-mobile era. As consumers have become more accustomed to mobile, instant and cheap payments domestically and internationally, the correspondent banking world looks even more cumbersome and expensive.
While the introduction of instant ACH/faster payment schemes around the world are bringing domestic clearing up to date, the world of international payments is a harder nut to crack. There is a foreign exchange element, there are different banks and clearing mechanisms involved. There are different charges and different settlement cycles. There is an argument that to fully solve this problem, a global payments network is required - one that is built on blockchain technology.
We are finally seeing solutions in this space that promise direct benefits to corporates. And it’s fair to say that the emergence of blockchain technology is driving this change.
There are two solutions to mention as they both not only promise benefits for corporates but also approach the problem in different ways. On one side, there is the new SWIFT Global Payments Initiative (gpi) that seeks to provide several benefits to corporates, including:
- Transparency of fees
- End-to-end payments tracking
- Remittance information transferred unaltered
- Faster, same-day use of funds in some cases
But initially at least, SWIFT is not making use of blockchain technology to deliver this solution. Rather, they are building on top of the already existing SWIFT network and existing siloed correspondent banking landscape. Blockchain is in their future plans and there is work ongoing in the SWIFT labs in this area. But, this solution from SWIFT is in large part a response to the emergence of blockchain technology and its possibilities, as well as the resulting competition that now exists.
SWIFT gpi is being adopted quickly by the cash management banks so corporate treasurers can expect to start seeing the promised benefits being offered by their banks in the near future, if not already.
On the other side, there is a solution from a company called Ripple, which is built on blockchain technology and promises to be a global decentralized payments network that provides real-time clearing and settlement of payments. On top of that, Ripple’s payment network (called RippleNet) claims to deliver lower costs and better visibility into those fees, the settlement timing and delivery (tracking). Ripple argues that only a global payments network, based on distributed ledger technology, can deliver the kind of improvements to the correspondent banking landscape that are now being demanded.
While corporates are not currently direct participants in either solution, they can expect to see much improved international payments services being offered by their banks as a result. And while SWIFT gpi’s solution is likely to get more traction with banks in the short term, unless it can deliver more tangible benefits such as global, real-time settlement and much lower transaction costs (potentially via its own blockchain-based solutions), RippleNet could well become more pervasive.
Note, there are many other companies offering international payment services and seeking to do that in a faster, cheaper manner, and with more transparency. Focusing on SWIFT and Ripple is useful partly because it is important to understand that while improvements in international payments for corporates may be coming as a result of the emergence of blockchain, not all solutions are using this technology (yet) to provide those improvements.