Blockchain's potential for revolutionizing the world’s payment systems has captured the imagination in recent years, and last month Santander became the U.K.'s first bank to use the technology to create a new international payments service.
Known as Santander One Pay FX, the service is currently available to the bank’s retail customers to transfer money between Santander accounts across multiple country corridors: U.K.-Spain, Spain-U.K., Spain-U.S., Brazil-U.K. and Poland-U.K. This covers 50% of Santander transactions from those countries, with more corridors to be added in the coming months.
But while One Pay FX as an interesting new development, it remains to be seen whether it heralds a genuine market shift, with other banks following suit and creating their own blockchain solutions.
Most international payments are still made through SWIFT — the Brussels-based communication network used by 11,000 financial institutions across the world — but transactions can take days or even several week to process, and incur a charge due to the intermediary services involved.
“Making an international payment is quite complex,” says Markos Zachariadis, associate professor of information systems and management at Warwick Business School. “It can have dozens of institutions involved at any given point in time, from clearing agencies to the telecommunication networks. So it’s kind of a long process, and traditionally very expensive.”
The main advantage blockchain technologies offer is speed. By using distributed ledgers which communicate from one Santander bank to another, One Pay FX eliminates the need for intermediary services. As a result, international transfers can be completed in the same day in many cases, without processing charge.
Santander says its new system is more transparent than many existing services. As an example, its spokespeople say that when customers use to SWIFT to send pounds from U.K. to Spain, they don’t know what the exact figure is in euros, because the foreign exchange takes place after they’ve sent the money. With One Pay FX, customers can enter a quantity in pounds, and then immediately see the quantity in euros in a second box, meaning they instantly have all the information they need to know.
Last year SWIFT responded to the potential competition posed by blockchain by introducing SWIFT gpi, an upgraded international payments service which offers greater transparency and processes almost all transfers within 24 hours. Data released this year by SWIFT showed that 50% of SWIFT gpi transfers are credited in less than 30 minutes, and payments can be made across 220 country corridors. As a result, 10% of SWIFT’s international transactions are currently being made using SWIFT gpi, a figure which is only expected to grow.
Such developments mean that most banks are unlikely to turn away from SWIFT anytime soon.
“The fact that gpi has gained so much momentum in a short space of time shows that most of the banks are not yet interested in adopting these kind of blockchain solutions on a mass scale,” Zachariadis says. “It’s interesting that Santander has done this, but most banks have these established infrastructures and technology systems and I’m not sure how much of their budgets they’re prepared to spend on replacing everything to use a technology which has yet to be really tested in major applications outside of bitcoin. They’re understandably a bit cautious.”
However, in the next few months, Santander promises that One Pay FX will offer instant international payments across several markets, faster than SWIFT gpi. If this transpires, and the bank are able to continue upgrading the service so it can both be used by corporate customers, and able to process international transactions to other banks, Zachariadis predicts that more blockchain-based solutions will be given greater consideration.
“The competition provided by these new technologies and ideas is definitely healthy for the whole industry,” he says. “With the global reach that SWIFT has right now, there’s obviously no other international payments system which can currently do the same things as them, but SWIFT may never have felt the need to create gpi if blockchain hadn’t been around. As corporate and retail consumers, we want the service providers to compete because that’s the only way you see progress.”