It's time for the banking industry to look to a future beyond SWIFT

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In 1973, computers were the size of a refrigerator. Today you can fit one in your pocket. SWIFT — the cross-border messaging protocol used today by more than 11,000 correspondent banks in 200 countries to move trillions of dollars — was also introduced in 1973. Sadly, its progress has not been so rapid. Despite its scale, its structure and performance are locked into the past.

Correspondent banking directed by SWIFT often takes days for funds to settle, is expensive to use and remains prone to manual errors. And that's not even taking into account the fact that some businesses in emerging markets might not be able to access it at all. SWIFT's continued reliance on rigid, legacy messaging formats, lack of real-time payment tracking and a complex web of correspondent banks to relay instructions is a glaring gap, considering fintech has been able to radically improve every other aspect of operating a business. It has had particularly negative impacts in parts of the world like Latin America and Africa.

Building better global payments infrastructure is one of the most immediate and most important problems stablecoins can solve, with one of the more massive addressable markets (SWIFT moves hundreds of trillions of dollars each year). The impact this could have globally would be huge, but it will take industry-wide alignment and concerted effort.

For a start, with a network of more than 10,000 banks, SWIFT benefits from a large network effect. And network effects are extremely, extremely hard to dislodge. SWIFT is going to keep existing and doing the same old thing. Strong network effects have helped once-incumbent companies limp on, long after they've been displaced by a better alternative. Western Union and Barnes & Noble are still in business, despite losing footing to digital alternatives.

For stablecoins to dislodge SWIFT, three things need to be in place. We've already done the most difficult part of this. The technology is there and proven. Blockchains have matured enough to support trillions of dollars in volume and billions of transactions, according to Visa's on-chain analytics. They're borderless, immutable, always-on and provide a consistent framework for payments infrastructure. They can provide a common language for disparate banks, payment systems and currencies to speak to each other.

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The next step is going to be bringing foreign exchange, or FX, and transaction settlement into a single transaction layer. SWIFT has only ever been a messaging layer, relaying to banks what they're expected to do and what debits to make between currencies. SWIFT isn't an FX solution or a settlement one. On-chain FX allows stablecoins to be swapped in real time, using blockchain as a single settlement layer that exchanges stablecoins denominated in native currencies, all done programmatically and without the help of humans looking at Bloomberg terminals and calling each other to negotiate pricing. This is also possible today; we're seeing banks like Braza, Brazil's largest foreign exchange bank, execute this at scale. When you combine this with seamless on- and off-ramps into local banks and fiat currencies, this is faster and cheaper than any combination of traditional FX and SWIFT transactions.

The final piece to put these ideas to work is going to be a massive, open and interoperable network of banks, using a common set of standards to connect on their own to blockchains with minimal need for technical integration.

Blockchains do not exist within local geographies, so standards that provide guidelines for how blockchain, stablecoins and local banks can communicate with each other are crucial. Fiserv launched its FIUSD stablecoin and JPMorgan launched its JPMD deposit token, and while these may get a lot of attention, these announcements are little more than noise if these coins cannot be seamlessly exchanged with other U.S. dollar and global stablecoins. This factionalizing of the stablecoin space will pull us further away from the endgame of displacing SWIFT, if there's no common language. For instance, we can have different email clients and internet browsers today because there's common protocols underneath.

The best way to break the power of SWIFT's web of correspondent banks is to have an open set of standards that allows any bank in the world to connect directly with any other, using blockchain as a single settlement layer, where any global stablecoin can be exchanged seamlessly and transactions can be settled near-instantly.

The tools are in place for us to do this and the model has been proven. But for it to displace SWIFT, it will take banks coming to the table alongside the growing decentralized finance industry. If banks don't, they risk losing control of the global payments infrastructure all together. The problem of SWIFT isn't going away. We need a system of global money movement that's finally as modern as the rest of the world.