Miffed with SWIFT?

SWIFT is to the payments industry what taxi cabs are to travel. Old, slow and likely to hit your wallet by taking you on the scenic route to your destination. Why? Why not. What’s your alternative?

For those of you who aren’t aware of SWIFT, it’s an acronym for the Society for Worldwide Interbank Financial Telecommunications. It’s a cooperative that started when all the banks wanted a uniform way to communicate securely when facilitating trade. Today there are 11,000 connected institutions and it’s available in over 200 countries and territories.

Over four decades have passed since SWIFT went live, and the markets have moved on. Businesses don’t want to pay correspondent bank fees or wait days for funds to be transferred between jurisdictions. Nor do they want to rely on a system that can’t incorporate innovations such as smart contracts or a distributed ledger.

Whilst businesses have complained for years about the system’s high cost and low speed, significant security flaws are what prompted a renewed global interest in pursuing alternatives.

Money for Jam

Roughly a year ago, hackers broke into the Bangladesh Central Bank. Once in, they obtained the correct credentials and transferred USD$81 million from the New York Federal Reserve via SWIFT. If there was ever a silver lining for the Central Bank of Bangladesh, it’s that the archaic practices of SWIFT meant the hackers were prevented from taking the USD$950 million they had originally intended.

What foiled the full amount being taken will go down in payment circles as a joke for the ages. Once the hackers had got access, they started by arranging transactions to accounts in the Philippines and Sri Lanka. The first few passed without a hitch. On the fifth transaction, a payment routed to a phoney organisation in Sri Lanka called the Shalika Foundation accidentally went out with a typo, calling it the Shalika “Fandation.” The story goes that the clever kids at Deutsche Bank spotted the typo and queried the transaction. Fearing the jig was up, the hackers pulled all coming orders and ran for the hills, never to be seen again.

While I commend the eagle-eyed team at Deutsche Bank, it’s astonishing and terrifying in equal measure that a manual error was the only thing that stopped the hackers from getting their paws on the money. Yet it’s this same manual error which causes so many genuine payments to be rejected each day, and consequently leads to valuable time, money and resources being wasted.

Fintech disruptors

Many start-ups are now starting to take on legacy systems like SWIFT in the finance sector. But how can fledgling fintechs hope to overthrow these established global juggernauts?

Well, if Uber and Airbnb can both dominate their respective markets without owning a single taxi or piece of real estate, then the answer is to learn from our peers in the technology space and own the front-end customer experience.

Take mobile investment app, Acorns for example. Seeing the number of people wanting to invest their money but unable to come up with the lump sum to meet minimum balance requirements, Acorns created a way for people to start building an investment portfolio with their spare change. Their technology rounds up purchase amounts, transferring the remaining dollars and cents to an account that can then be invested on a recurring cycle to start building long-term wealth.

Instead of reinventing the wheel when it comes to financial investments, Acorns simply enhanced the customer experience by creating a gateway that allowed their customers to start investing without risking large amounts of their savings.

Back in the cross-border payments world, the fintechs are using machine learning to connect all networks in the market. Algorithms can find the fastest and cheapest payment rail for every transaction and route it accordingly.

If there’s anything to learn from disruptors like Uber and Airbnb, it’s to ignore the physical constraints of financial infrastructure and legacy system barriers. The key is to provide a customer experience that leaves people miffed with how they ever tolerated SWIFT.