Expert opinions, FINANCE

Is there a Russian alternative to SWIFT?

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a global association owned by its members and the world’s leading provider of secure exchange of financial messages. The creation of SWIFT in 1973 in Belgium was supported by 248 banks from 19 countries. SWIFT carries an average of 42.3 mio financial messages per day and connects over 11,596 members all over the world.

Maxim Blinov / RIAN
Maxim Blinov / RIAN

There is a Russian-made alternative to SFIWT: the System for Transfer of Financial Messages (SPFS) which is similar to SWIFT in terms of technology and infrastructure; it was launched in 2016.

There are currently 402 banks in Russia connected to SPFS, and if Russia is cut off from SWIFT, they will transition to the intra- and interbank messaging inside Russia. One must understand that Russian banks still use SWIFT for local financial operations. The system is open to foreign participants, both banks and legal entities. As of now, there are only a few foreign banks that use SPFS.

Naturally, SPFS cannot replace SWIFT in servicing international payments. At the moment, it is impossible to create a Russian-made system that is similar to SWIFT in terms of scale and distribution.

Speaking of creating Russian-made payment systems that use alternative infrastructure and technology solution, the world has already accumulated certain experience with introducing blockchain and using it in international payments. Even Russian banks have tried using blockchain in payment transactions: Alfa Bank and Sberbank were the first in Russia to use blockchain technology in 2017. In global payment business, blockchain has widely been used by American Express, Visa, MasterCard and PayPal.

Many of the world’s major banks offer their clients to do international transactions using alternative payment systems. These are the American banks Wells Fargo and Citibank, as well as British banks Barclays, HSBC, and other European banks such as Santander, BBVA and INTESA SANPAOLO. Stock exchanges such as Nasdaq, SIX Swiss Exchange, UAExchange, the Australian Securities Exchange and others have also transitioned to blockchain. In 2018, SWIFT itself successfully concluded a pilot project involving blockchain.

As of now, R3 and Ripple have been trying to push aside centralized systems of international payments, first of all, SWIFT, by offering their own technologies based on blockchain. However, there are other initiatives as well: in Asia, the financial startup Lightnet is striving to become a regional real-time financial settlement center with a total investment of some tens of millions of dollars. MOIN allows for making payments between Japan, China, the US, Singapore, Australia, Great Britain and others. InstaReM is a company engaged in digital cross-border payments. Velmie launched a platform for cross border money transfers based on blockchain for retail and business customers in 2020.

It is obvious that the rivalry for servicing payments and the scale of using blockchain in cross-border transfers will only increase. In the nearest future, banks will tend to use blockchain more. In the medium term, the use of decentralized technologies at a global level can become very real. In order to create an international payment system based on blockchain in Russia, one needs to acquire the permission of national regulators and reach multilateral agreements with stakeholders. At the same time, participants in the traditional centralized systems should understand all benefits and disadvantages or transitioning to the new system.

Funding is another condition for the development of a Russian alternative to SWIFT. Investment in blockchain technology that allows for making cross-border payments reaches several millions of dollars. Thus, Ripple has invested $50 mio in MoneyGram in order to jointly provide money transfer services based on blockchain. However, cooperation has been put on hold.

Asian-based Lighnet has attracted $31.2 mio to create a regional payment system. Given the scale and complexity of the task, as well as bureaucratic obstacles, expenses and overall hesitation over the viability of the project, the introduction of alternative payment systems based on blockchain technologies will be slowing down. To make the transition quicker, participants need to see real income that would exceed the expenses. Another thing should be kept in mind: new technologies do not simply lower costs, they also lower the income of banks that receive trillions in profits from money transfers.

By Irina Aydrus, Head, International Finance program, Institute of World Economy and Business, People’s Friendship University of Russia

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