Japan’s three largest banks, Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Sumitomo Mitsui Financial Group, are collaborating on a groundbreaking framework for instant international payments. This innovative system will leverage blockchain technology on top of the existing SWIFT payment infrastructure, aiming for commercial use as early as next year.
Trials are set to commence this fall, involving more than 10 other Japanese and international lenders. The primary focus will be on facilitating business transactions such as trade settlements, with the possibility of extending the service to consumers in the future.
Currently, international payments via the SWIFT system often involve multiple correspondent banks, leading to processing times ranging from under an hour to a month, particularly when transactions lack necessary anti-money-laundering information. The new system proposes a solution by utilizing stablecoins on the blockchain, tied to different currencies. These stablecoins will be directly transferred between banks through the existing SWIFT network, enabling near-instantaneous transactions.
This innovative approach eliminates the need for banks to invest in entirely new systems, allowing companies to initiate transactions through their usual banking processes. Customer costs will be limited to foreign exchange and blockchain usage fees, potentially reducing transaction costs in emerging markets to less than 10% of their current levels.
Progmat, a blockchain platform backed by the three megabanks, will collaborate with Tokyo-based blockchain developer Datachain and SWIFT to build the payment mechanism and issue stablecoins for interbank transactions. SWIFT’s decision to partner with the Japanese team stems from Japan’s relatively advanced legal framework for electronic payments.
The global market for cross-border payments is substantial, reaching $182 trillion in 2022, according to Allied Market Research. G20 leaders have also emphasized the need to enhance the cost and speed of international remittances.
