Cryptocurrencies and blockchain are set to disrupt much of the financial system. Banks and remittance companies are in for a severe shakeup and are already beginning to feel the change, and some say the SWIFT system will also be replaced by a cryptocurrency.
To prepare, the legacy financial system is partnering up with crypto companies as they look to migrate to a tokenized and automated financial system that cryptocurrencies will initiate. But are the blockchain networks being created an ideal platform for what will be the biggest of all industry disruptions.
Which cryptocurrencies might replace the SWIFT system?
Ripple (XRP), the third biggest cryptocurrency by market cap, is regularly touted as being a cryptocurrency for banks and cross-border payment transfers.
RippleNet, Ripple’s worldwide payments network, is growing rapidly as more financial giants partner up. Already, RippleNet has a diverse network of over 300 financial institutions from all corners of the globe. It’s acknowledged that they’ll use Ripple’s XRP for payments transfers, which will help them facilitate secure and almost instantaneous transactions at minimal costs.
The benefits don’t end there. When financial institutions switch to XRP, they’ll no longer have to store money in multiple foreign accounts around the world. Instead, they can store their resources securely and locally, which will ensure more control for the institution and ultimately slice their overheads.
Stellar Lumens (XLM) is another cryptocurrency trumpeted as a payments disrupter. XLM is designed for cross-border transactions, and the token is designed as an intermediary. This means the XLM token can be designed to represent any asset, such as fiat currencies, and be sent anywhere in a matter of seconds, and using the security and immutability of the Stellar Lumens blockchain, the token takes out the necessity of the intermediary.
Many people compare Stellar with Ripple as they’re both payment networks and were both created by Jed McCaleb, but it is thought that Stellar is aiming more for the individual, whereas Ripple is aiming for institutional partners.
That being said, Thai startup, Lightnet, a payments provider built on Stellar, has just raised $31 million in a Series A funding round.
Investment in Lightnet was led by major Asian financial conglomerates, such as Singaporean United Overseas Bank (UOB), South Korea’s Hanwha Investment & Securities and Japanese Seven Bank, which owns almost 70,000 convenience stores worldwide, including all 7-Eleven stores in Japan.
Lightnet aims to boost cross-border payments in South East Asia. On its website, it describes itself as a frictionless settlement hub for the region to provide real-time payment settlement. Their chairman, Chatchaval Jiaravanon, says Lightnet is aiming to promote low-cost financial inclusivity for the four billion people in the Asia-Pacific region, with an emphasis on the unbanked and underbanked.
‘Banking the unbanked’ has become OmiseGo’s rallying cry since they launched in August 2017. Another Asian-based company, OmiseGo (OMG) was created for cross border payments with the aim of facilitating fast, secure and reliable peer-to-peer transfers for anyone, including the more than 2 billion unconnected from the banking system.
OmiseGo’s parent company Omise has been providing payments services to large financial institutions across Asia since launching in 2013, and even featured as Forbes’ Fintech Rockstar in their November 2016 issue. And since launching the OMG project, the team have been putting together a scalable, payments network that will be able to handle any asset.
OMG has many parallels with XRP and XLM, but also many unique capabilities. The OmiseGo blockchain aims to transact any tokenized assets on its decentralized exchange (DEX), such as fiat currencies, loyalty points, and gift cards. These tokenized assets will be tradable or spendable for any other asset represented on the blockchain.
OmiseGo is an integral part of the Ethereum eco-system and has Ethereum creator, Vitalik Buterin, as an advisor. The OMG team is working closely with ETH devs and is heavily involved in the development of the Plasma protocol, a Proof-of-Stake layer two scaling solution for Ethereum. When ready, Plasma will allow ETH and OMG to scale to hundreds of thousand of transactions a second.
Omisego also released their SDK wallet last year. The SDK wallet is open-source and free for any company wanting to use it. By integrating the wallet into a company’s own payments system will free up lots of time, effort and blockchain technical know-how, that’s necessary to create such a technical device. It could even be the next SWIFT system without us even knowing we’re using it.
Integrating the SDK, a company can have its own unique design and without any discerning connection to Omisego, will be able to transact its own token. However, every single transaction that takes place using the SDK will go through the OMG blockchain.
So, will cryptocurrencies replace the SWIFT payment system?
It’s without question the financial world is in for the ultimate disruption. The legacy system is expensive, slow and centralized. Financial institutions are already starting to implement change and will benefit as much as anyone else from the possibilities of blockchain.
The SWIFT system is antiquated. Many governments are already trying to bypass it as they try and evade America’s authoritarian control of the legacy financial system. As blockchains like XRP, XLM and OMG begin to scale at speeds necessary for mass adoption it seems inevitable that they will be the systems to replace SWIFT.
XRP has many partnerships with financial giants in place, and the technology is already fast, so it seems inevitable that it will be at the forefront of the payments disruption. As does, XLM. With similar capabilities to XRP, it could mean that only one of them takes the lion’s share of the cross-border payments world. But there are enough differences and with so many different institutions, it seems idiotic to suggest only one will take it all, especially as blockchains become interoperable.
Then there’s OMG. Their SDK and DEX are unique in facilitating the trade of legacy assets like loyalty points for fiat. Almost any kind of asset can be traded on there for any other, so with the introduction of secure, instantaneous transactions at scale, the SDK might just be the next SWIFT system without us knowing it.
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