IBM’s latest blockchain announcement, IBM Blockchain World Wire, is a standards-based clearing and settlement platform and new payment rail built and optimized for real-time cross-border payments. Based on the Stellar protocol, the solution overcomes many of the drawbacks of today’s correspondent banking infrastructure, providing transparency, access, speed and security, while reducing the cost and complexity associated with cross-border payment systems. IBM believes the announcement is “the start of a revolution in the banking industry”, similar to the launch of the internet twenty-five years ago.
As revenue moves increasingly away from banks to other types of payment providers, users are demanding transparency into each transaction and support for new types of “money” in the form of digital assets--including cryptocurrencies. According to a 2018 McKinsey study, hundreds of trillions of dollars are involved in cross-border payment transactions, with payments revenue representing 38% of total banking revenue globally, as well as being a critical customer relationship channel.
Traditional cross-border payment systems have used the same basic infrastructure for the past fifty years. While the focus has been largely on improving user experience, the underlying system is outdated. Traditional payment systems create a bifurcation between the payment message and movement and settlement of money, creating inefficiencies and making payments costly, time-consuming and error-prone.
Current systems are designed for large transactions made by major banks; the infrastructure doesn’t handle smaller transactions and smaller payment processors efficiently. In addition, current systems aren’t able to support high transaction volume and instant settlement. Finally, these systems don’t work well bi-directionally – a capability that is becoming increasingly important in cross-border payment systems. With multiple intermediaries, high transaction fees and slow settlement times, traditional payment processes are inefficient and complex.
IBM World Wire – A Closer Look
IBM World Wire, a global payment system powered by blockchain, overcomes the issues with current payment systems, providing a universal transactional facility for clearing and settlement of cross-border payments. IBM World Wire supports cross-border payments in 73 countries and 48 currencies with over 1,000 distinct currency pairs, providing the ability to move payments in real-time, moving value as part of a streamlined, connected operation.
• Efficient real-time market pricing driven by open ecosystem of market makers
• Simple API for immediate peer to peer payments, regardless of size, origination, destination, currency
• Universal payment supports micro payments, low value, high value, commercial, retail, remittance and others
• Point-to-point transfer; full visibility in transit
• Immediate final settlement, less than one- minute transaction times, real time foreign exchange
• Support for multiple digital assets and asset classes: cryptos, stable coins, central bank digital currencies and tokenized commodities
• Messaging and clearing using ISO 20022 payment messages
Analytics Features planned for 2019:
Given IBM’s strength is analytics and reporting, IBM also plans analytics features including:
• Transaction dashboard for payments and exchanges to check the status of and export any transactions initiated on World Wire,
• Participant Whitelist Manager with visibility on SLA adherence by all network participants,
• Asset Trustline Manager with analytics for issued assets across the network,
• Platform-wide AML alerts for IBM to identify potential structuring and suspicious activity within the network to involved participants, and
• Due Diligence Portal to streamline manual due diligence between participants for quicker and faster relationship building.
IBM Roll-Out Plans
IBM plans a phased roll-out of IBM World Wire to implement the company’s long -term vision of providing token-enabled digital economies that promote new ventures with on-demand credit fulfillment, a new class of financial products and services, and trusted, seamless global trade.
PHASE I (NOW) 24/7 instant clearing and settlement, regardless of size, origination, destination, or asset. In this phase, supported settlement assets include Central Bank Digital Currency, e-Money, tokenized commodities and asset-backed securities.
In PHASE I, IBM is targeting non-banking financial institutions (MTOs) to build the operational endpoints and establish the network and ecosystem. This is based on the fact that MTOs have existing relationships with banks and will have a shorter onboarding process. At this point, IBM has signed 6 MTOs as part of their Early Adopter Program and expect to sign more throughout the rest of 2019 as they build out their network.
PHASE II (IN PARALLEL) Banks will be liquidity providers through stable coins, driving payment volume through MTO enabled channels. Later banks will be directly integrated as payment service providers (PSPs).
PHASE III (IN PARALLEL) Central banks will act as liquidity providers issuing and trading digital assets backed by reserves (CBDC’s) with derivative offerings through real-time gross settlement (RTGS) and liquidity subsidization of large value corporate payments.
LATER PHASES (2021+) will include customized implementations for specialized clients, Telcos and corporate treasuries.
Financial Services is one of the primary verticals where blockchain can really disrupt the industry. As the world becomes more “global” and consumers demand seamless, secure real-time payment processes, IBM has the technology, the customer base, the partnerships and the reputation that will drive both the realization of their vision and the success of IBM Blockchain World Wire.