SWIFT is working with global transaction banks to test the feasibility of using distributed ledger technology (also known as blockchain) to improve the reconciliation of their nostro accounts in real time.
They will identify the challenges, define the specifications, build the application and ultimately test the blockchain proof of concept (PoC).
A nostro account refers to an account that a bank holds in a foreign currency in another bank. According to SWIFT, the 12 global transaction banks using its global payments innovation (gpi) service are sending several hundreds of thousands of cross-border payments across the globe since the launch of the service in February. This number is set to grow as more than 30 additional banks have started their implementation project for live operations.
Banks participating in the blockchain PoC include Australia and New Zealand Banking Group, BNP Paribas, BNY Mellon, DBS Bank, RBC Royal Bank and Wells Fargo. An additional 20 banks will join the programme at a later stage to further validate and test the distributed ledger technology concept.
Leveraging the Hyperledger Fabric v1 technology and key SWIFT assets, the PoC will ensure that all the information related to nostro/vostro accounts is kept private, and seen only by the account owner and its correspondent banking partner.
It will do so by using a private permissioned blockchain in a closed user group environment, with specific user profiles and strong data controls. User privileges and data access will also be strictly governed.
Besides that, the data stored on the ledger and the application programming interfaces (APIs) used to query and update it will also be designed to support ISO 20022 message formats.
"The nostro DLT proof of concept is deeply embedded in the SWIFT gpi story of streamlining the cross-border payments system," commented Wim Raymaekers, Head of Banking Markets and SWIFT gpi at SWIFT. "It allows us to explore how this maturing technology can provide a collaborative solution to what our gpi member banks have identified as a significant pain point: nostro accounts reconciliation.
Nigel Dobson, Global Manager Transformation Projects, Australia and New Zealand Banking Group, said: "[This] is the next logical step to scaling a distributed ledger solution for Nostro Reconciliation, which in turn will bring significant fulfilment benefits to our customers at the same time as simplifying our operational processes. We also hope to realise additional benefits for wholesale liquidity management with the aim of lowering costs and better managing risk across the SWIFT community. We remain very optimistic for the future of secure and scalable distributed ledger technologies, and their ability to drive value for both banks and their customers."
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