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Welcome to The Payment Expert weekly podcast, brought to you by SBC Media. Each week we analyse the news driving the global payments industry forward; the innovation, the infrastructure, and everything that has to happen to make it all possible.
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When we do innovation, we get serious about it. It's not innovation theater. We are innovating here uh responsibly, practically, um and collaboratively. Hello and welcome back to the Payment Expert podcast, your source for the latest news, insights and analysis on the payments industry. I'm Lewis Thompson, news editor at Payment Expert and with me today is Nick Kerrigan, managing director and head of innovation at Swift. Nick has spent the last several years leading Swift's innovation work across blockchain, digital assets and new forms of money, sitting at the center of an infrastructure debate that is reshaping how value moves between institutions, currencies, and networks. Let's talk a bit first about yourself. Obviously, you've led Swift's innovation work across blockchain, digital assets, and other new forms of money. I suppose at the core, talk to us about the opportunity that Swift is looking to unlock by introducing the blockchain-based shared ledger into its infrastructure stack. For sure. And first of all, thank you so much, Lewis, for having me on this podcast. It's really exciting. I'm really looking forward to the conversation. at Swift, we're all about improving cross-border payments, right? That's our real core focus uh and objective. And so what we look to do is to enhance cross-border payments with a couple of really key initiatives that we have at the moment. So The first one is about enhancing the existing rails, the existing experience for customers. And we're working very hard on that to improve speed and transparency and cost on those existing rails to really uplift the end, the experience for the end customers, consumers, businesses alike, people like you and me when we move money cross border. And then what we also look at is how can we prepare for the future and How can we build the rails of the future? uh And this is where we think about how we can enable the benefits of digital finance to really scale the world, make the world a more connected place. And that's where this blockchain-based ledger comes in. it's basically, the concept is introducing a blockchain on top of the existing Swift networks. So Swift already connects 11,500 banks and corporates globally. And what we're looking to do is is to bring the benefits of blockchain to that network. And so for the ledger, our first use case is very much focused on enabling real-time cross-border payments 24 hours a day, seven days a week. And we're proceeding on this initiative in a really, really pragmatic way, It's really about getting a minimum viable product together and going live with that this year. with real world transactions. so allowing participating banks to execute real time payments and get a synchronized view of their obligations. And I guess this is really all about, know, Swift's role as a trusted neutral infrastructure where we can interoperate between that existing rails and the new rails that we're helping to build and enable, you know, the banks that are participating in it. to uh scale their efforts and tokenize deposits and interoperate those tokenized deposits between each other. Absolutely. mean, if we take it from the perspective of, uh say, a bank and the role of a blockchain-based shared ledger when it comes to architectural terms, um imagine a bank is there. is it intended to act as a system of record, a coordinated layer, or is it an orchestration? stration layer, I should say across multiple tokenized networks. I'm a bank, would you describe it to me? Yeah. So I I think the way to think about it is the ledger acts as a shared coordination layer that records and validates payments commitments between banks and therefore, you know, it's leveraging existing compliance processes. It supports multiple settlement uh options. And so it's important to remember, Swift is not a settlement system. And so our role is not changing with the ledger, but we're introducing new technologies to help that system really become uh faster, more effective, more efficient. And so to do that, we're building this ledger on open source foundations. So it's an EVM compatible hyperledger based architecture that we have. So that's well-known, well-proven distributed ledger technology that we're then combining with Swift's global reach and the security and standards and all the things you would expect very much from Swift. And so that then lays the groundwork, if you like, for uh scaled, efficient cross border value transfer on a blockchain. And so we've been at this now in uh terms of looking at the benefits of blockchain for well over five years. And I guess what I would share for listeners who use here is really what we found is the challenge for the industry isn't about innovation, because innovation is happening at pace. And you can really see the trend towards like tokenization accelerating. But the challenge really is this big word of interoperability, which we tend to throw about, but is actually a very, very real challenge. And what that really means is how do you connect new technologies, new blockchain infrastructures with each other? And how do you also connect those blockchains with the existing uh infrastructure and ensure that that world really does become more connected and not more fragmented? So we think we've probably got an important role to play here in actually ensuring that that infrastructure is inherently uh interoperable and can be. can be combined with the existing scale network that we have. Yeah, I I suppose when I think of interoperability, part of it too is obviously finding the right payment mode for the right transaction or certain transactions use certain Rails better for different things. And so a part of it is not just connecting everything, but it's also pinpointing which kind of Rail or method is the best use case. For example, I know sort of stable coins now seems to be uh a niche when it comes to those cross border transactions because it's, know, incidents. uh So is that part of it? I mean, how do you view the kind of the role of interoperability and then you have things like orchestration, moving those payments across fragmented systems and globally? mean, you actually touch on some really important points there. And there will be different types of instruments, different types of systems that work better for different use cases. We very much see that. oh Talking about, for example, the existing Rails, we think the existing Rails can be made a lot better for retail customers and give deliver a better experience for those retail customers, for those small businesses. On the other hand, we do see that the benefits of a blockchain and and orchestration being really useful in the more sort of use cases. And that's why the first use case for our ledger is very much focused around the wholesale uh use cases, because with that orchestration, with that coordination, you can start to be able to look at payment obligations both ways between different banks, for example. And so you start to then think about how can that technology be used to save liquidity to make balance sheet management and risk management a lot more uh effective. So I think that's where the of the blockchain space comes into play. But the future obviously is definitely going to be multi choice. And we're very much agnostic to technologies, to the forms of uh money, because our goal here is seamless communication, seamless orchestration. And as you rightly say, There's one piece of it that is literally connecting things together. that's very, very necessary. If they connect, we're not going to achieve anything. But going further with blockchain, is indeed that sort of level of programmability and orchestration where things start to get exciting, where you can synchronize events and payments together. Yes, absolutely. You're completely right there. I I suppose another issue today, a complex problem when you look at tokenized finances, you synchronise asset settlement with the movement of money. suppose it's almost a delivery verse payments conundrum where sort of assets and cash may sit on different rails and technology. how is that issue uh sold or what kind of things can be done to mitigate those uh friction added there? Yeah. I mean, that's a subject we've been deep into for the last five years or so. And and looking at, okay, different instruments, different digital instruments on different blockchains, how do you synchronize and coordinate uh across them? uh And we've done experimentation through that period on uh delivery versus payment, on payment versus payment for FX settlement, and indeed uh on sort of straight through uh payments, kind of end to end. For the blockchain-based ledger, we're really focusing on that that kind of clean one-way transfer as the initial use case, because you've got to start at a relatively straightforward transaction to be able to move really, really quickly in this space and get people live. But we also do know, given the work that we've done through live trials over the last few years, how to interoperate between different systems and across different blockchain uh ledgers. And for example, We've done work about settling, for example, tokenized bonds with digital money, where those bonds and money sit on different platforms. So we have the knowledge to do that, and we're able to deploy those kind of capabilities in a live environment already, and looking to be able to take that into production. So I think what you see a bit is that there are multiple jigsaw pieces here, and we're starting to fit them all together. Yes, yes, totally, totally agree with you there. I mean, I suppose when you look at, you know, all different types of money and funds, whether it's stable coins, tokenized deposits, CBDCs, I suppose from your perspective, it's not about viewing them as competing forms of money, but they're all complementary instruments in a way that they all have a certain use case when it comes to um most practical means in which they are used essentially. So they interoperate seamlessly in that way. Is that your take on that? I think it very much is my view. mean, I think different forms of digital money are going to be more or less suitable for different use cases. think, know, we at Swift have always been agnostic to the form of value. We don't dictate how our members transact between each other. That's very much their choice. And we're a global cooperative, which means we respond to the needs and desires of our members. And so if our members want to use one type of money or another type of money, we are very much open to that. We've done, as you might have seen, quite a lot of work over the years on CBDCs, both retail and wholesale, in the ledger. kind of MVP at the moment. very, we're really supporting banks who are live with tokenized deposits because we see that really the demand from the financial institutions to use tokenized deposits and interoperate tokenized deposits between institutions. And then of course, there is also, you know, lots of excitement in the world of uh stable coin. I find that very much intriguing. uh much like anybody else don't have a crystal ball as to how all this is going to turn out. But my hunch would be that we're going to end up in a of multi-money, multi-chain kind of world. And in a way, in layman's terms, you can think of Swift as the institution that aims to stitch that all together. so that's kind of been fundamental to our innovation agenda and continues to be so. I think the one thing to note really here is I think it's a hallmark of our innovation efforts. One, that they are inherently collaborative. We work together with the industry to produce uh solutions that really solve for the needs across the industry. And two, we are very much around looking at how that world can be much more connected. how we can end up with a much, much improved financial system as a result of these infrastructure upgrades. One of the things I found interesting, uh Nick, that I've seen from Swift is how you cover those last mile challenges for retail payments frameworks. For example, I'm a merchant in the UK and looking to send money over to the US and the correspondent bank is JP Morgan, for example, I'll see that it goes there, but I won't see those last mile legs of where the funds move from. So talk to us a bit about how Swift is developing a tool. So for that full oversight, the full view of the money transfer. Yes. mean, I guess context for this a bit is to say that, you know, the industry has really made significant improvements over the recent years. you know, one stat that kind of shows that is today. 75 % of the messages sent over Swift arrive at the beneficiary bank within 10 minutes and often within seconds. So you can see that there has been a uh real improvement in speed and efficiency here. Having said that, as you rightly mentioned, something like 80 % of a cross border transaction is spent in that last mile, which means what we describe as arriving at that end bank and then being credited to the customer. And so that's really where the industry needs to focus its attention now. there is real industry attention. There's also real policymaker attention because the G20 has uh targets for cross border payments and we're aiming to uh support and enable the industry to meet those targets. in this space, our new retail payment scheme uh framework is really focused on ensuring best in class consumer experience for cross border payments. And what does that mean in reality? It means features like upfront certainty of cost. It means end to end transparency of where that payment is. It means what we call full value delivery. In other words, if I'm sending you $100, $100 reaches you, right? And it also means the fastest possible settlement scheme. that includes instant settlement where the the domestic technology allows allows for so um, we're feeling pretty good about this space. We've got broad industry support. We've got 25 banks committed to to starting to process payments under this framework. By the end of June, we'll have more by the end of the year. And so I think that's a really, you know, significant into, you know, initiative for the industry. And it kind of shows the role that Swift has in bringing the industry together as a as a convener to really uplift that that payment experience. And that's the experience on the existing rails. As I said, we're also building new rails with the blockchain-based ledger. So I hope you can see a bit through all of this, that when we do innovation, we get serious about it. It's not innovation theater. We are innovating here uh responsibly, practically, um and collaboratively. And, you know, we look forward to where that future really takes us. Yes. Not innovating for innovation sake, innovating to uh solve, I suppose, the problems and the pain points of the payments landscape today. Well, thank you very much, Nick, for joining us today on The Payment Expert. podcast. We hope you have a great week. If you've been watching this and you're not already subscribed to the Payment Expert podcast, make sure to subscribe wherever you do get your podcasts with plenty more insight and analysis coming over the weeks and months ahead. And for the latest news as it happens, head over to paymentexpert.com. We'll see you next time. you