Brad Garlinghouse called Swift’s legacy banking system out as a cosmetic upgrade on existing, obsolete infrastructure. He said:
“Swift GPI is like putting a Ferrari shell on a Model-T engine. It’s a cosmetic upgrade on old infrastructure: messaging is still not tied to settlement, it’s unidirectional and can’t solve for liquidity.”
This is in relation to the ongoing Swift vs Ripple debate for settling cross-border payments. Swift has the advantage in time, as it is a system that has been existing for 45 years as a messaging system service for interbank remittance. Ripple aims to blow Swift’s existing solution out of the water by providing settlement in times as low as 2-3 minutes.
Even as Swift handles around half of the world’s high-value cross-border payments, Ripple is making strides by signing an average of 1.5 new customers per week. It is currently partnered with around 100 banks and financial institutions.
Ripple’s competitor for Swift’s messaging system is xCurrent, a messaging service that is based on the blockchain. It allows banks to settle the transfer of money in a short time while providing end-to-end encryption. It also provides a transparent view of the money that will be received including transaction fees along with a receipt upon completion.
Swift has mentioned that they are working on a blockchain-based messaging system as well. Harry Newman, head of banking at Swift said, in an interview with Financial Times:
“It is no secret that correspondent banking is a 1998 model and we are busy addressing that, bringing it to a 2018 model. But in terms of speed, what problems are you trying to fix? We have our own cloud and API solutions and are already doing payments in minutes or even seconds.”
Their new service, Global Payments Innovation, accounts for 4 in 10 transactions on the US-China payment corridor. They also say that it is difficult to scale blockchain-based solutions to the scale that they cater to. This is in contrast to Ripple’s almost infinitely scalable Consensus algorithm and the ability of their network to connect banks point-to-point, similar to how the Internet works.
Swift’s Newman brings up the criticism of only xCurrent being used by banks, as only 15+ banks are currently using Ripple’s crown product, xRapid. xRapid allows for settlement in 2-3 minutes for cross-border transactions using Ripple’s XRP token as a bridge currency to provide liquidity. This would remove the need for nostro and vostro accounts held by correspondent banking systems today. On this, Newman said to Financial Times:
“If you don’t have money on the blockchain you are just doing a different kind of messaging system for correspondent banking. Currently, cryptocurrencies are just not fit for purpose — they go up and down too much.”
The volatility debate is often brought up, but it is not valid in this scenario. xRapid transactions spend only 2-3 seconds on the XRP Ledger, which results in volatility being almost ignored as the exchange rate is unlikely to change in that short of a time.
Twitter users responded to Brad’s potshot on Swift, with influencer Tiffany Hayden saying:
“#SWIFTgpi users should read about #passfreely. SWIFT Service Bureaus host & manage txn data on Oracle Databases. Hackers can bypass the authentication process behind Oracle servers and pull out txn & user credential data from the system.”
User IntelliFinance said:
“It’s like sticking a « 5G » sticker on a 56K dial-up modem”
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