Daily Fintech Conversations

Watching the SWIFT vs Ripple fight at SIBOS2017 from my home office

Stock up on popcorn. This is an epic - it is Ali vs Frazier or Borg vs McEnroe, pick your sport.

In 2014 I surfed the SIBOS stream from Boston virtually. In 2015 I went to Singapore. In 2016 I went to Geneva. It was fun to soak up the atmosphere and renew relationships as only face to face can do. In 2017, I decided to go virtual/digital again. Much as I love Toronto, going on the digital express saves jet lag and other frictions and gives me chance to do both SIBOS and Money 2020 back to back (some people do that physically, I admire their stamina but don’t wish to compete with them).

The other benefit of attending virtually is that it is easier to tune out the noise and focus on the signal (which is core to our mission at Daily Fintech).

The one signal already emerging loud and clear from SIBOS2017 in Toronto is the SWIFT vs Ripple fight. It has already got heated. Ripple is smarter at guerrilla marketing and social media buzz, as you would expect from a cybercurrency startup. But the bookies have not yet set the odds and many would bet on SWIFT. Anybody set this one up yet on Augur?

There are partisan sites on both sides. Our aim at Fintech Genome is to offer a forum for reasoned debate where real customers can learn what makes sense for them.

As your virtual moderator I will first set context as best I can.

The future of correspondent banking
After SIBOS2015 in Singapore I noted 6 takeaway themes. Number 6 was: Correspondent Banking will survive the transition to real time and SIBOS will always be key to Correspondent Banking.

Yes, that does betray my point of view but read on because I saw something at SIBOS2016 in Geneva that tells me that SWIFT may decide to score an own goal and let Ripple win.

From my October 2015 post:

It is fashionable to say that Correspondent Banking is dead. This conflates the current incarnation of Correspondent Banking which is batch based with the concept of Correspondent Banking itself. I am convinced that Correspondent Banking will survive the transition to real time and SIBOS will always be key to Correspondent Banking.

I am grateful for this insight to one of those serendipitous conversations where you leave the echo chambers. The serendipity arose from casual chatting while sharing a taxi. My companion was what I would describe as core SIBOS, from a regional bank far, far away. She described how SIBOS was the most important week in the calendar when she could a) learn the new stuff efficiently and b) renew the personal relationships that underlie the Correspondent Banking network.

I then sought out other core SIBOS attendees along these lines during lunch and breakfast sessions to see if this was a random point of view or if there was a pattern. I can best describe this pattern by a hypothetical customer-centric story.

A mid sized company in mid sized country wants to do business in another mid sized country in a totally different region. For example, imagine a Malaysian company wanting to do business in Poland. Note that this is NOT big market to big market. This not an American company wanting to do business in China or a European company wanting to do business in America. Nor is this nearby countries with existing relationship channels; it is not a Malaysian company wanting to do business in Indonesia.

That is where banks in both places – Malaysia and Poland in our hypothetical – facilitate the relationships and make a profit from doing that. The banks can do that because a relationship of trust – nurtured over many lunches and other socializing – exists between those banks. The technology makes it efficient. The old mantra is “schmooze offline, transact online”.

Anybody who thinks that you can replace that only with technology is dreaming. At some point a new real time cross border platform will emerge (many were touting their wares at SIBOS). At some point SWIFT will go real time. Those 9,000 member banks will keep the human relationships and just switch over to a new system.

The David always beats Goliath myth

We all love the David vs Goliath story. If you are marketing a startup you play that song until the needle on the record player is broken (oops, carbon dated myself there).

The idea of inevitability is based on survivorship bias. We see the one startup that made it and ignore that 99 that failed. It also ignores the inflection points where an incumbent decides to score an own goal and give victory to the startup just as that startup was going to concede defeat. You can see this story most clearly in what happened between Blockbuster and Netflix. It was far from obvious that Netflix would win; Blockbuster let them win at the point when Netflix was asking to be acquired by them. There was no reason why Blockbuster could not do streaming, the technology was available to everybody.

Not all SWIFT Members are created equal - from SIBOS2016 in Geneva
George Orwell in Animal Farm wrote that “all animals are created equal but some are more equal than others”. At SIBOS2016 in Geneva I observed that the future of correspondent banking must include regional banks and that big global banks were trying to write them out of the script. The reason is simple: big banks don’t need correspondent banks, they simply use their own branches (and can connect them using Distributed Ledger Technology).

Blockchain, Mockchain, who loves ya baby
As Gartner tells us, Blockchain is now heading down the slope of disilusionement. You can see this from SIBOS in past years:

SIBOS2014 Boston: what is this weird thing called Blockchain, oh well who cares I have more important stuff to learn.
SIBOS2015 Singapore: this weird thing called Blockchain may change my world, better attend that session.
SIBOS2016 Geneva: I was told I should check out Ripple and see if it is an alternative to SWIFT, lets go to their stand.
SIBOS2017 Toronto: it looks like a big fight, but what actions should we take for our bank?

The SWIFT CEO in his keynote publicly trashed Blockchain, Bitcoin and Crypto. Tactically this looks like a reaction to Ripple moving their tanks onto the SWIFT/SIBOS lawn. Yet SWIFT has delivered a viable Proof Of Concept that used Blockchain to replace legacy Nostro/Vostro accounts. That can usher in real time payments. With that addition, SWIFT GPI can beat Ripple and SWIFT can avoid the Blockbuster fate.

If you get a moment away from all the great coffee and cocktails and socialising at SIBOS, chip in an tell us what you know - or what you want to know. No ad hominem attacks - Marquess of Queensberry rules apply.