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November 27, 2018

What is the issue?

  • SWIFT India partnered with fin-tech company MonetaGo for a pilot project using Block Chain technology.

What is SWIFT?

  • SWIFT, or the Society for Worldwide Interbank Financial Telecommunication provides messaging services to domestic market infrastructures, banks and corporate.
  • It enables the financial community to exchange automated, standardized financial information securely and reliably.
  • Further, the SWIFT system helps reduce costs and risks while improving compliance.

What is the pilot project plans to do?

  • The banking sector is planning to create a block chain platform with SWIFT India to prevent frauds and ensure transparency and security of real-time transactions.
  • SWIFT India is a leading provider of secure financial messaging services for the global financial sector.
  • Now it has partnered with fin-tech company MonetaGo for a pilot project.
  • The first block chain project in the country went live recently.
  • In that project MonetaGo developed a block chain platform for the Trade Receivables Discounting System (TReDS) or bill discounting exchanges.
  • This is a significant move as the banking sector has been hit by a spate of frauds in recent years.

Why such Block Chain Platform is needed?

  • Bank Frauds: Earlier this year, Punjab National Bank was hit by Rs 140 billion Letter of Credit (LoC) fraud.
  • It was revealed that diamond exporters Nirav Modi and Mehul Choksi, with the help of a Punjab National Bank (PNB) employee, ensured that the Letters of Credit that were routed through the SWIFT system were not reported in the Core Banking System (CBS) of PNB.
  • Experts opinioned that the Rs 140-billion fraud could have been avoided had there been an integration of PNB’s CBS with its SWIFT system.
  • Security issues: SWIFT has also been hit by a cyber scam in which hackers tried to steal $100 million from the Bangladesh central bank two years ago by gaining unauthorized access to SWIFT codes.
  • Digital infrastructure: India’s rising focus on developing digital infrastructure which is supported by both policy and technological innovation makes the platform inevitable.
  • Better analysis of Information and Transactions: This work will have a positive impact on the information available to the banking industry at large.

What is other such venture of the SWIFT in Block Chain platform?

  • SWIFT partnered with 34 international banks — including Commerzbank, Societe Generale, Deutsche Bank and JPMorgan Chase — to create a blockchain platform for Nostro accounts.
  • Nostro accounts are accounts held by a domestic bank on behalf of a foreign bank, to facilitate trade financing and other cross-border transactions.

What are the merits of using Block Chain Platform?

  • The block chain system, especially in the case of Nostro Account improved the
  1. speed of cross-border transactions
  2. reduced costs
  3. Made the process of reconciling between different accounts more efficient.
  • Block Chain platform uses a technology called the distributed ledger technology (DLT) with respect to the banks.
  • DLT allowed for real-time liquidity monitoring, easy reconciliation, transaction status updates, full audit trails and visibility of expected and available balances.
  • However, DLT is strongly dependent on the existing systems of the banks.
  • There is a need for integration of the DLT with existing systems while banks improve their existing technology infrastructure from the bottom-up.
  • While the test case was successful, block chain technology is still at a nascent stage.
  • It requires considerable development before it could be allowed to handle billions of dollars worth of daily cross-border transactions between banks.

 

Source: Business Standard

 

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