In this 4th article about the blockchain and banking we will discuss the decentralized ledger of transactions.

Don’t miss any of my previous stories about the blockchain:

  1. Blockchain and payments
  2. Blockchain and fundraising
  3. Blockchain and transactions

How moving money actually works

Moving money around the world is a logistical nightmare for banks. A bank transfer, in country or between different coins, has to pass through a complicated system of intermediaries, from correspondent banks to custodial services, before it ever reaches any kind of destination.

The two bank balances have to be reconciled across a global financial system

The fact is that all are linked in this way as this is how our financial infrastructure was built. If you want to send money from a UniCredit Banca account in Europe to a Wells Fargo account in the US, the transfer will be executed through the Society for Worldwide Interbank Financial Communication, also called SWIFT.

Each bank maintains different ledgers, which means that these different ledgers have to be reconciled at the end of the day

UniCredit Banca and Wells Fargo don’t have a financial relationship, they have to use the SWIFT network for a correspondent bank that has a relationship with both banks and can settle the transaction — for a fee.

Thermostat
Credits: Moja Msanii

The SWIFT protocol doesn’t send the funds, it simply sends the payment orders. Money is then processed through a system of intermediaries. Each intermediary adds additional costs to the transaction and creates a potential point of failure — 60% of B2B payments require manual intervention, each taking between 15–20 minutes. Each correspondent bank maintains different ledgers, at the originating bank and the receiving bank, which means that these different ledgers have to be reconciled at the end of the day.


The blockchain, with a decentralized ledger of transactions, can completely change this old state of play. Instead of using SWIFT to check every financial institution’s ledger, an interbank blockchain can keep track of all transactions publicly and transparently.

Ripple and XRP

Ripple, an enterprise blockchain services provider, is the most prominent player attempting to replace SWIFT. While the company is best known for its associated cryptocurrency, XRP, this is separate from Ripple’s banking products.

Ripple logo

Ripple’s xCurrent product provides banks with a faster, two-way communication protocol that permits real-time messaging and settlement. Ripple currently has over 100 customers signed up to experiment with its blockchain network.

A real example of how blockchain can innovate banks is the We.Trade project, a trade platform that wants to make trade faster for both banks and businesses. The we.trade platform is a digital one stop shop for trade. The platform built on the IBM Blockchain using Hyperledger Fabric offers banks’ customers access to a simple user-interface, leveraging innovative Smart Contracts and opening up potential new trading opportunities.


Andrea
I'm an HX designer with a passion for the financial and crypto fields. I'm focused on innovative stuff and want to share what I learn. Feel free to reach me on andreapaci.me