Available online at www.sciencedirect.

com
Available online at www.sciencedirect.com
ScienceDirect
ScienceDirect
Procediaonline
Available Computer
at Science 00 (2019) 000–000
www.sciencedirect.com
Procedia Computer Science 00 (2019) 000–000 www.elsevier.com/locate/procedia

ScienceDirect www.elsevier.com/locate/procedia

Procedia Computer Science 147 (2019) 428–434

2018 International Conference on Identification, Information and Knowledge in the Internet of

2018 International Conference on Identification,
Things, IIKIInformation
2018 and Knowledge in the Internet of
Things, IIKI 2018
Ripple vs. SWIFT: Transforming Cross Border
Ripple vs. SWIFT: Transforming Cross Border
Remittance Using Blockchain Technology
Remittance Using Blockchain Technology
Tianyi Qiu, SyncHR, Inc., Oakland, CA 94612, USA
Tianyi Qiu, SyncHR, Inc., Oakland, CA 94612, USA
Ruidong Zhang, University of Wisconsin–Eau Claire, WI 54701, USA & AIF Blockchain Labs
Ruidong Zhang, University of Wisconsin–Eau Claire, WI
Zhejiang University, 54701, USA & AIF Blockchain Labs
China
Yuan Gao, Academy of MilitaryZhejiang University,
Science China 100091, China & State Key
of PLA, Beijing
Yuan Gao, Academy of Military Science of PLA, Beijing
Laboratory on Microwave and Digital Communications, National 100091, China &
Laboratory forState Key
Information
Laboratory on Microwave
Science and DigitalTsinghua
and Technology, Communications, National
University, BejingLaboratory for Information
100084, China
Science and Technology, Tsinghua University, Bejing 100084, China
Abstract
Abstract
Blockchain technology is transforming traditional financial systems. Cross-border money remittance industry is in a
crossroad being
Blockchain challenged.
technology The traditional
is transforming SWIFTfinancial
traditional system systems.
is facing Cross-border
new comers like Ripple
money system which
remittance is is
industry based
in a
on the blockchain
crossroad distributedThe
being challenged. ledger technology
traditional SWIFT withsystem
its own crypto new
is facing tokens. This like
comers paper conducts
Ripple a SWOT
system which analysis
is based
bothblockchain
on the technologies to find ledger
distributed out whether the blockchain
technology with its own technology has the
crypto tokens. Thispotential to transform
paper conducts a traditional
a SWOT analysis
industry
on both and how this may
technologies be possible.
to find We conclude
out whether that Ripple
the blockchain has all has
technology of the
theadvantages
potential over SWIFT despite
to transform some
a traditional
minor issues.
industry and howIn short-term,
this may beSWIFT will
possible. Westill take the
conclude lead
that in the
Ripple hasremittance market dueover
all of the advantages to the economy
SWIFT of scale.
despite some
However, in long-term,
minor issues. emerging
In short-term, SWIFT technology like the
will still take Ripple
leadwill eventually
in the remittancerevolutionize
market duetheto remittance
the economyindustry
of scale.or
even other in
However, financial systems.
long-term, emerging technology like Ripple will eventually revolutionize the remittance industry or
even other financial systems.
© 2019 The Author(s). Published by Elsevier B.V.
©
© 2019
This
2019 The
is an
The Authors.
open accessPublished
Author(s).article bybyElsevier
under
Published the B.V.
CC BY-NC-ND
Elsevier B.V. license (https://creativecommons.org/licenses/by-nc-nd/4.0/)
This is an open access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/4.0/)
Peer-review under
This is an open responsibility
access article underof
thethe
CC scientific
BY-NC-ND committee of the 2018 International Conference on Identification,
license (https://creativecommons.org/licenses/by-nc-nd/4.0/)
Peer-review under responsibility of the scientific committee of the 2018 International Conference on Identification, Information and
Information
Peer-review and
under Knowledge in
responsibility
Knowledge in the Internet of Things.the
of Internet
the of
scientificThings
committee of the 2018 International Conference on Identification,
Information and Knowledge in the Internet of Things
Keywords: SWIFT; Ripple; BlockChain; Remittance
Keywords: SWIFT; Ripple; BlockChain; Remittance

Tianyi Qiu. Tel.: +1-217-721-7390

E-mail address:
Tianyi Qiu. Tel.:qtianyi13579@gmail.com
+1-217-721-7390
E-mail address: qtianyi13579@gmail.com

1877-0509 © 2019 The Author(s). Published by Elsevier B.V.

This is an open
1877-0509 access
© 2019 The article underPublished
Author(s). the CC BY-NC-ND
by Elsevier license
B.V. (https://creativecommons.org/licenses/by-nc-nd/4.0/)
Peer-review under
This is an open responsibility
access of the
article under thescientific committee
CC BY-NC-ND of the(https://creativecommons.org/licenses/by-nc-nd/4.0/)
license 2018 International Conference on Identification, Information and
Knowledge
Peer-reviewinunder
the Internet of Things
responsibility of the scientific committee of the 2018 International Conference on Identification, Information and
Knowledge in the Internet of Things

1877-0509 © 2019 The Authors. Published by Elsevier B.V.

This is an open access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/4.0/)
Peer-review under responsibility of the scientific committee of the 2018 International Conference on Identification, Information and
Knowledge in the Internet of Things.
10.1016/j.procs.2019.01.260
 Tianyi Qiu et al. / Procedia Computer Science 147 (2019) 428–434 429
2 Author Name/ Procedia Computer Science 00 (2019) 000–000

Introduction

SWIFT stands for Society of Worldwide Interbank Financial Telecommunication. SWIFT, as a network for secure cross border
financial transactions or money remittance, has existed for over 45 years. It dominates the global remittance market as a result of
the booming global economy. According to Investopedia, every day, nearly 10,000 SWIFT member institutions send
approximately 24 million transactions on the network (Shobhit Seth, 2017).

Before SWIFT, domestic or international currency transfer was made using the Telex system, which is a separated telephone-like
system to deliver free form transaction messages. Free form messages were a burden to the senders in that they need to describe
all details of the transaction in sentences. This method is low in efficiency, accuracy and security during the verification of each
message contents.

SWIFT simplified and standardized the process by introducing a fix length code known as SWIFT code. It is a network of banks,
and is heavily depended on banks as operating units.

The problem with SWIFT is the liquidity and credit risk as its business model heavily relies on tiers of banks to allow the
transactions to go through. A clearing center or settlement center is needed at the sender’s end and the receiver’s end. This makes
the whole process lengthy.

Unlike SWIFT, Ripple tries to bypass the intermediate tiers of banks by using the blockchain technology to enable cross-border
remittance process into a straightforward process and allow transactions to be confirmed in seconds. Ripple issues its own
cryptocurrency called XPR to be the medium to allow different currencies to be converted to XPR back and forth easily. In
Ripple system, transaction data, remittance and settlement are conducted instantly and synchronized. This leads to lower cost of
transaction, faster delivery time, and more security.

The status quo is that SWIFT is still dominating the remittance market, while Ripple system is presenting a huge potential to
replace SWIFT system. This paper analyzes core technologies used in SWIFT and Ripple, and conducts an SWOT analysis to
compare Swift with Ripple. Unique feature of each technology will be discussed.

SWIFT System

SWIFT system uses predefined code to pass on transaction details through the SWIFT network. Each transaction is described by a
series of SWIFT code. The code consists of several key identifier components, such as institution code, country code, location
code and branch code to indicate the sender and receiver. Here is an example SWIFT code, CPOUUS31XXX. Interpreting the
code from a look up table, CPOU represent for the bank code as Capital One Bank (USA) NA; and US represent as the country
code; 31 represent the location code as Glen Allen, VA. And XXX is for the branch code as documented internally for each bank
and it is an optional field in the code. The rest of text that needs to be sent is the transaction detail. Each section of SWIFT code is
defined universally across the SWIFT system.

However, the SWIFT system is essentially a messenger system. The SWIFT system can only deliver the transaction messages.
This messaging process does not settle payments. The payment is processed through the regular banking system.

Therefore the SWIFT transaction process can be divided into two parts, messaging delivery and payments settlement. The
messaging delivery part can be illustrated by the below Figure 1. A service user goes to a sending institution to request a fund
transfer to a different institution in another country; the sending institution will asks the sender to enter the details of the
transaction. The transaction details then will be automatically converted into standard SWIFT coded message which will then be
sent through the SWIFT network using a computer terminal. And once the receiving institution received the message, SWIFT
network will also send a transaction copy back to the sender’s terminal. The sender will get update about the whole process with
status report and can pull the trigger to halt the transaction at any time to the sending institution.
430 Tianyi
Author Qiu / et
name al. / Procedia
Procedia Computer
Computer ScienceScience 147000–000
00 (2019) (2019) 428–434 3

Figure 1. Workflow of SWIFT messaging. Modified based on "What is SWIFT? Tracking how money moves internationally from bank
to bank thanks to the SWIFT messaging system" by C. Allison, 2018, Fin. Retrieved August 6, 2018, from
https://fin.plaid.com/articles/what-is-swift. Copyright by J. Hemminger.

And as for the payments settlement, it still follows the standard banking system as illustrated by the Figure 2 below.

Figure 2. Cross-border Payment Flowchart. Adapted from "Ripple, the disruptor to the forty years old cross-border payment system" by P.
Chen, Feb 2, 2018, Fin. Retrieved August 6, 2018, from https://digit.hbs.org/submission/ripple-the-disruptor-to-the-forty-years-old-
cross-border-payment-system.

The SWIFT payment process will go through five parties before eventually reaches to the beneficiary. As the originator initiated
the transfer order from originating bank, the correspondent bank will help originating bank to transfer further deliver the
payments cross-border. The Central bank will handle the currency exchange and pass the payment to the correspondent bank of
beneficiary. And the fund eventually will arrive at beneficiary’s bank account in the beneficiary bank. Both correspondent banks
will charge the payment delivery. The SWIFT payment process has different tiers so the coded transaction message will be
transmitted from the five parities before the transaction starts. At each stage, the message will be properly stored, screened and
verified before passing to the next tier to meet regulatory demands and to prevent security risks, and sender can be updated about
the whole process with status report.
4 Author Name/ Procedia Computer Science 00 (2019) 000–000
Tianyi Qiu et al. / Procedia Computer Science 147 (2019) 428–434 431

As can be seen in the above diagram, the SWIFT transaction message flow needs to go through and involves multiple steps. On
the other hand, the actual flow of payment fund requires collaborations among one or several banks which are members of the
SWIFT network. At each step after the transaction message is received, the fund to be transferred will be verified and can be
stopped if a bank in the middle or the local receiver branch is having liquidity problems. As a result, the remittance settlement
would likely take several days when multiple institutions are involved the process.

Therefore, the SWIFT messaging process and payment settlement process are NOT synchronized, and the payment verification
and settlement process is time consumer and less efficient.

The traditional SWIFT system can be analyzed based on the SWOT framework, and is summarized in the following table.

Table 1．SWOT analysis table for SWIFT

Strengths Weaknesses
 Universal Standard SWIFT Code  Settlement take days to complete
 Simple operation and secure process  Transaction cost is opaque and high
Opportunities Threats
 Embracing new technology  No actual control over banks
 Potential Merger or Acquisition

Strengths
Standardized SWIFT Code:
It is considered an innovation that SWIFT has standardized SWIFT code. The code could uniquely and easily indicates the sender
and receiver bank without mistake, meanwhile allows some flexibility for transaction details. The code not only allows
transaction data formatted, but also brings a standard to the banking world. SWIFT code standard eventually helps the company
dominate the market for cross-border remittance.

Simple operation and secure process:

The transaction details users entered into the system can be automatically generated to SWIFT code and sent through the SWIFT
network via a series of steps or stages. At each stage, the message will be properly stored and verified before passing to the next
receiving institution in line. And users can receive status report and can pull back the request to halt the transaction at any time.
Since the messaging flow of the process is separated from the flow of actual payment settlement, and payment is only cleared
after the payment liquidity is verified, the remittance process is highly secured. And the banks and institutions on the SWIFT
network have latest security software to further preventing forgery or fraud of any kind.

Weaknesses
Settlement taking days to complete:
The SWIFT network is centralized with a multiple tiered hierarchy. For each country, it has a regional or country operator. And
all institutions request messages will be collected by the regional operator. Stored and verified before pass to the regional
operator of the destination country. And the request will be sent to the receiver bank. The architecture might be easy to manage
and monitor. But when it comes to the operation side, a larger volume might need the operator to route more messages to banks
involved. And the process of actual payment delivery through the hierarchy is also painful. It might take 3-5 days to complete the
final settlement for some regions.

Division of fee is opaque:

The overall banking system’s operational fee is opaque, so as the SWIFT system that operates upon them. The fee here should be
defined as the cost of the entire transaction. With more member institutions or banks in the hierarchy need to coordinate about
funds liquidity, more overhead and delay will occur. Each bank take part in will charge correspondent bank fee. And exchange
rate is the majority portion of the fee since it charged based on percentage, and it could be varying for each transaction and
control by the correspondent banks as they might keep the fund for extra time. The fee includes the initial SWIFT messaging, the
correspondent bank fee and exchange rate fee. The cost may be reasonable when the transaction volume is high, and the cost
varies based on region. Overall, the cross-border remittance cost is considered expensive.

Opportunity
Embracing New Technology:
432 Tianyi Qiu et al. / Procedia Computer Science 147 (2019) 428–434
Author name / Procedia Computer Science 00 (2019) 000–000 5

Being aware of challenges posed by Ripple, SWIFT has started the Global Payment Innovation Initiative (GPII) to enhance the
traditional SWIFT messaging system. This is a set of new rules and service level agreements that the banks and institutions in
SWIFT network must sign. It aims to deliver these features for customer to benefit from payments with same day uses of fund,
predictable fee and transparency of the process, end-to-end tracking of payments, and transfer of rich remittance payment
information.

Potential M & A:
SWIFT, being in the industry for so long has a large network of members and strong cash flow. It is possible that SWIFT can
acquire new tech start-ups like Ripple to improve its services.

Threat
No actual control over banks:
SWIFT only delivers the message from sender bank to receiver bank as requested by the sender. It, however, doesn’t have the
actual control over the member banks which actually make the payment occur. SWIFT only has the partnership with banks in the
network, but has no control over the banking process. Therefore, the real security and transaction time and cost for the payments
to be settled might entirely depend on the sender banks, intermediate banks and receiving banks. The errors could occur within
these processing banks which are out of control of SWIFT. Cross-border payments could also suffer from handling process delay
due to different countries’ holidays and different time-zone.

Ripple System
Ripple’s key components include distributed ledger and cryptocurrency. It carries transaction data in the same time as the actual
fund that needs to be transferred. Or, in the words of SWIFT, the messaging flow and the fund flow is synchronized. Ripple
exploits the cryptocurrency and blockchain technology to have a decentralized P2P network to pass on transaction information
and settle the payments simultaneously and potentially immediately after remittance request is initiated from the sender. Because
the Ripple is both the messaging network and the settlement network, the remittance time is near real time and the cost is low.

Blockchain is a list type data structure for public ledger which stores data elements is a block. A block contains a current
timestamp, the hash value of the previous block and transaction data. By design, the blockchain structure is resistant to alteration
of all data contained in a block. The list is constantly generating new blocks, and in order to change the data contained in blocks,
all generated blocks need to be modified at the same time accordingly. This structure is usually maintained in a P2P (peer-to-peer)
network with different consensus protocols for node to node communication and validation of newly generated blocks. The
blocks are distributed throughout the network and each node can get the same copy, hence, the entire blockchain allows
transaction data to be transparent.

Ripple system also provides more information about the liquidity status and currency exchange rate for each member bank,
unlike traditional SWIFT which only provides minimal information about remittance status.
 Tianyi Qiu et al. / Procedia Computer Science 147 (2019) 428–434 433
6 Author Name/ Procedia Computer Science 00 (2019) 000–000

Figure 3. Ripple Transaction Flowchart. Adapted from "Ripple, the disruptor to the forty years old cross-border payment system" by P.
Chen, Feb 2, 2018, Fin. Retrieved August 6, 2018, from https://digit.hbs.org/submission/ripple-the-disruptor-to-the-forty-years-old-
cross-border-payment-system.

As shown by the graph above, there are four key components in the process flow of Ripple. The messengers will connect the
sender and receiver bank through RippleNet and establish a bidirectional message communication to exchange information. The
sender will receive information like risk details, foreign exchange rate, payment details, entire cost of the process and even the
estimated time to completes the transaction. The ILP (Inter-ledger Protocol) is a sub-ledger to keep track of credit, debits, and
liquidity across the transacting parties. This ensures the settlement happens instantly and atomically which mean the process will
either fail or settle within milliseconds. The FX Ticker will monitor the validity of exchange rate quote. The Validator indicates
the success or failure of the transaction at the receiver bank cryptographically. It removes all settlement risks and reduces time
delay.

The bank posts the request across the network on the blockchain, and with the help of messenger, several quotes will be received
with fee and different foreign exchange rate from member banks or institutions in the destination country. The sender then can
choose the best available option. Once the quote is accepted by the sender, it will be locked down by the receiver bank and the
FX Ticker will inform that the sender chosen foreign exchange rate is valid. The sender bank then will convert sender’s local
currency to Ripple’s cryptocurrency called XPR, and the XPR fund will then be sent to receiver bank via XPR network directly.
During this period, ILP will be providing ledger the whole time to keep the risk away and make the process atomically.
Eventually the receiver bank will confirm through Validator the receiving of XPR fund and convert the fund into local currency
to be issued to the receiver. With so many merits in the technology, there are more than 100 financial institutions and more than
75 countries are now starting to use Ripple technology according to MIT Technology Review. (Mike Orcutt, 2018).

All these steps can happen within seconds. This makes Ripple very near to a real-time system, unlike SWIFT which might take
days to fully complete the process. Besides, in Ripple, transaction data or messages can come in full details, and the whole
process flow is simpler than SWIFT also.

The Ripple system can also be analyzed based on the SWOT framework, and is summarized in the following table.

Table 2．SWOT analysis table for SWIFT

Strengths Weaknesses
 Low cost of transaction and 24x7  XPR is control by the company
 Real-time transaction/concurrent settlement  Oversupply of XPR and potential higher cost
Opportunities Threats
 Revolutionize global remittance industry  Other cryptocurrency competitors
 Potential as a centralized currency

Strengths
Low cost of transaction:
Ripple uses its own cryptocurrency XPR and blockchain ledger to carry transaction details as well as the payments on a 24x7
basis. Each unit of XRP is now worth 0.614149 dollar. And the transaction fee is 0.001% of each XRP. The cost is quite low and
nearly negligible.

Real-time transaction and settlement:

Ripple is able to turn the cryptocurrency into currency at any time through member banks or institutions. So the transaction flow
is pretty simple and 24x7. Once the request is made and customer selected the fee and rate quota, the transaction can be
submitted. The receiver bank can instantly confirm the payment has been made. The process is in real time.

Weaknesses
The XPR cryptocurrency controlled by the company:
Ripple announced the max amount of cryptocurrency to release is 100 Billion XRP. There are 40 billion of XRPs in the market
right now. The issuance of the cryptocurrency and how much to circulate are controlled by this private company. Any oversupply
of XRP may affect the intrinsic value of currency.

Potential increase of transaction cost in long run:

The transaction cost using Ripple currency is 0.001% of its original XRP value. However, more and more transactions happening
each day may lead the increase of transaction cost and may force the company to release more XPR to support high transaction
434 Tianyi Qiu et al. / Procedia Computer Science 147 (2019) 428–434
Author name / Procedia Computer Science 00 (2019) 000–000 7

volumes.

Opportunities
Potential to revolutionize global remittance infrastructure:
The idea of cryptocurrency as a remittance tool has many merits. It will take efforts to have more banks and countries accept this
technology. More and more global institutions and banks need to partner with Ripple. With its fast transaction speed, it can
support high volume during transaction which is superior to SWIFT. And in Japan, there are already 61 banks using ripple to
handle cross-border transactions.

Ripple’s XPR as a centralized currency:

The value of decentralized currency like Bitcoin is highly unstable and unpredictable. Market fluctuation for the currency might
make a great impact to the real-world market. Unlike Bitcoins, Ripple currency is centralized as in its value and current status can
be controlled and tracked by the company. The process can also be monitored or regulated by regulatory bodies.

Threats
Other cryptocurrency competitors
Currently cryptocurrency competitors like Bitcoin and Ethereum also allow crypto currency to be sent across border on peer-to-
peer blockchain networks. Competition can be fierce if these cryptocurrencies are more widely accepted.

Conclusion
Traditional banking and financial settlement systems have always been the most conservative and high risk averse when dealing
with new technologies and changes. As such, SWIFT can still lead the cross-order remittance market over Ripple in the short
term. On the other side, Ripple system using cryptocurrency and distributed ledger is challenging SWIFT to dramatically
improve the remittance service to benefit customers. These benefits include real time delivery, 24x7 services, and low transaction
cost. New systems like Ripple will inevitably change the landscape of cross-border remittance market in the next 5 to 10 years.

References

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Updated September 12, 2017
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innovation-in-cross-border-payments.html. Last updated June, 2016
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swift-response. Last updated November 20, 2014
[11] Ashiqur R. Ripple SWOT Analysis: Strength, Weakness, Opportunities and Threats. https://www.raybids.com/ripple-swot-analysis-strength-
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