The Russian invasion of Ukraine will cause disruption to cross-border payment systems. Along with tech advances, it could challenge the dominance of the Swift network
Analysis from the Economist Intelligence Unit (EIU) suggests that while digital disruption to domestic payments continues, the ongoing Russia-Ukraine war will cause parallel disruption to cross-border payment systems. The dominance of SWIFT is endangered.
To begin with, the EIU expects growth in digital payments to slow over the next five years.
Although domestic payment systems are on the rise, cross-border payments are still mostly facilitated by the “old-fashioned” and “cumbersome” networks.
In particular, Swift has “encountered criticism for its relative inflexibility and lack of transparency”. The network has also seen a decline in the number of correspondent banking relationships over the last decade.
After Russia started an unprovoked aggressive war in Ukraine, it was kicked off the Swift network. This move fostered the development of the Russian nascent Swift alternative SPFS. The paper suggests other countries such as China and India may double down on alternative networks too.
Besides, cross-border payments will be disrupted by government-backed efforts to link separate national systems. For instance, the Central Banks of five Asian countries aim to develop an interoperable cross-border system for QR code-based payments. Other facilitators of possible disruption include emerging technologies, e.g. blockchain, APIs and tokenisation.
Nevertheless, the EIU research concludes that setting up and scaling a full-fledged alternative bank-messaging system would be expensive and time-consuming. Given the prevalence of dollar-denominated cross-border flows, Swift will remain the dominant network for a while. However, ultimately countries and lenders should come together to either improve the Belgian network or invent something new.