Wells Fargo’s Blockchain System: Faster and More Efficient Than SWIFT The US banking sector received news from Wells Fargo Bank about its internal cross-border money transfer blockchain system that outperforms SWIFT and its traditional global messaging systems.
Why is blockchain technology being used?
SWIFT is currently used by more than 11,000 financial institutions, but Wells Fargo says that internal transactions can be completed more quickly and at a lower cost through their blockchain-based digital cash system, named “Wells Fargo Digital Cash.”.
The system is based on R3 Corda Enterprise software and aims to make money transfers between accounts within the bank more efficient. When a bank has to send money from one account to another, especially when it involves the exchange of different currencies, they have to rely on SWIFT and other third-party banks, making the process slow and expensive.
What are the advantages compared to SWIFT?
Lisa Frazier, head of Wells Fargo’s innovation group, explained that relying on SWIFT creates many obstacles in money transfer, but by using digital cash—
The bank can transfer funds up to 20 hours in 24 hours, while in a traditional system like SWIFT, this facility is limited to only 5 days and 6-9 hours per day.
It is faster, cheaper, and more efficient than SWIFT.
Currently, when a bank has to send money between branches located in different countries, it has to use SWIFT. But with the help of this blockchain system, the bank will be able to transact between its branches in the form of digital cash, saving time and cost.
How does Wells Fargo Digital Cash work?
The digital cash system at Wells Fargo functions as a stable coin because of its design. The bank maintains value stability through its possession of real currency, which corresponds to each digital token exchange. Customers will obtain digital cash tokens, which the bank holds in digital wallets and lets users transfer these tokens within their system.
The responses of SWIFT along with the strategic actions taken by banks in this situation remain under investigation. SWIFT continues working at R3’s blockchain technology without official statements regarding the matter. A new system developed by SWIFT and R3 unites conventional payment systems with digital payment infrastructure.
Through JPM Coin, JPMorgan has introduced its digital cash system while using Quorum as its blockchain foundation. JPM Coin functions to speed up and enhance service between institutional payments.
However, Lisa Frazier says that Wells Fargo Digital Cash and JPM Coin are not the same, as there is a difference in the functioning and objectives of both.
Will Wells Fargo open it to the outside world?
For now, this digital cash of Wells Fargo will be used only within the internal system of the bank and will not be connected to any other digital cash system or cryptocurrency.
According to fintech expert Alex Lipton, this technology can help improve the internal systems of Wells Fargo, but it will not be very effective for external use. He said that big banks usually rely on SWIFT, and thus the use of this digital cash will be mainly limited to simplifying the internal processes of Wells Fargo.
Conclusion
Wells Fargo has adopted blockchain technology to make its internal financial transactions more efficient. With this new system, the bank will be able to send money between its accounts faster, and there will be less dependence on traditional systems like SWIFT. However, this digital cash is only for the bank’s internal system for now and will not be connected to other banks or cryptocurrency networks.
This means that Wells Fargo is accelerating the adoption of blockchain technology, but when and how it will open up to other financial institutions and customers is yet to be decided.
FAQS
1. What is Wells Fargo’s stablecoin?
Wells Fargo is reportedly developing a stablecoin designed to facilitate faster and cheaper cross-border transactions compared to the traditional SWIFT system.
2. How does Wells Fargo’s stablecoin work?
The stablecoin is expected to operate on blockchain technology, enabling instant and low-cost transactions while maintaining a stable value, likely pegged to the U.S. dollar.
3. Why does Wells Fargo believe its stablecoin is better than SWIFT?
According to Wells Fargo executives, their stablecoin offers faster settlement times, lower fees, and greater transparency compared to SWIFT, which relies on intermediary banks that can slow transactions and add costs.
4. Will Wells Fargo’s stablecoin replace SWIFT?
While it may offer an alternative for certain transactions, SWIFT is a globally established network. Wells Fargo’s stablecoin might complement or compete in specific use cases, particularly for institutional clients.
5. Who can use Wells Fargo’s stablecoin?
The stablecoin is likely to be available for institutional clients and business transactions rather than direct consumer use, at least in its initial phase.
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