IBM makes a bold move.
Computing giant IBM has launched Blockchain World Wire, a new financial rail it says can simultaneously clear and settle cross-border payments in near real-time—a development that will heap pressure on conventional financial institutions.
With the global payments industry currently growing at an average of 7% a year, McKinsey Financial Services estimates the market will be worth $2 trillion by 2020, with further disruption expected from the continuing ascendancy of fintechs.
According to IBM, World Wire can readily integrate with existing payment systems to support payments of any size, to any destination, in any asset type, using blockchain technology and the open-source, decentralized Stellar protocol for digital currency to fiat currency transfers.
It claims that its security-rich network incorporates robust access controls and permits financial institutions to clear and settle in a matter of seconds. In using the World Wire framework, two financial institutions transacting together agree to use a stable coin, central bank digital currency or other digital asset as the bridge asset between any two fiat currencies.
The institutions use their existing payment systems connected to World Wire’s Application Programming Interfaces (APIs) to convert the first fiat currency into the digital asset. World Wire converts the digital asset into the second fiat currency, which then completes the transaction.
The near-simultaneous clearing and settlement—as well as the elimination of multiple parties processing the transaction—is expected to lower charges, posing a direct threat to correspondent banks’ margins.
McKinsey forecasts global payments will account for 36% of total banking revenues by 2021. But analysts say the slow pace of innovation, the emergence of technologies such as blockchain and the advent of Open Banking has handed the competitive advantage to nonbanks in the short term.
Whether conventional banks can play a formative role rather than a reactive one, only time will tell.