Governments have increased demands for terrorism financing reporting, politically exposed persons and anti-money laundering. Thus processes are added to back office reporting and manual document collection over the payment messaging system, adding increased costs, time and risk for bank management.

One global bank recently paid $US1.9 billion in compliance fines and subsequently spent $US4 billion to fix risk and compliance issues.

Transferring money can still take several days internationally, money can get lost and there is potential for error in the details submitted. Currently false positive for international transfers run at around 6-8 per cent of all transfers done, and there is a penalty cost for the bank for each false positive.

A report by Spanish bank Santander estimates the costs of using blockchain could be reduced by $US15 billion to $US20 billion a year in cross-border payments alone.

About 95 per cent of international money transfers are currently done on SWIFT. Founded in 1973, it is a co-operative of 11,000 banks globally and provides a standard message system for cross-border payments.

Ripple has entered the fray as a start-up funded by Andreessen Horowitz and Google Ventures. Ripple is a blockchain company that could potentially eliminate SWIFT. In Australia, Ripple is testing with CBA, Westpac and ANZ.

Not wanting to go down without a fight, SWIFT has invested in opening up its platform for the forces of blockchain with an initiative last year called the Global Payments Initiative (GPI). Over 80 global banks are set to use the platform from next year. SWIFT is owned by the banks and has a vested interest to survive.

SWIFT has sought start-ups to help it meet this challenge, including a start-up from Australia called identitii.


Identitii uses a secure token blockchain on top of the legacy SWIFT network to help banks store transactional information in real time. This is required to clear remittances such as "purpose of payment" or KYC information.

This means that banks can exchange detailed information using identitii's platform without making any changes to their core payment processing or settlement systems. Sybil Crasto from Westpac last month stated on the SWIFT website: "How SWIFT has collaborated with identitii could actually help the industry address the current problems".

SWIFT has spearheaded the potential threat from start-ups, such as Ripple with a broad collaborative effort with start-ups.

Whatever the technology eventually adopted using blockchain, the end customer will clearly be the winner with time-consuming processes reduced on international money transfers. More money can be spent if it is cleared and made available faster.

This is one of the core challenges facing the industry, and a solution would represent a step change for society as the global economy benefits due to the increase in liquidity.

Martin Rogers is the chief investment officer for KTM Ventures Innovation Fund LP.