Alternatives to American trading systems – what does the future of financial technologies hold?
The modern transcontinental transaction system is based on the American SWIFT system. This creates significant difficulties for European businesses offering payment services to clients, for example, in designing solutions for clients wishing to conduct transactions in countries subject to US sanctions, but not those covered by the EU, such as Cuba. This also creates significant transactional constraints for large corporations requiring fast international transfers. Transfers made via the Swift network can take as long as five business days, and sometimes longer.
An alternative to SWIFT was required by the Joint Comprehensive Plan of Action (JCPoA) and its requirements for INSTEX. Although the current goal of the new payment system is to enable France, the UK, Germany, and other EU countries to continue trading with Iran, we can expect that in the coming years the system will be developed and adapted to the needs of European payment service providers, in order to become independent from the American network. It seems particularly significant that there are no plans for any European banks to be involved in the ownership of INSTEX, which opens the possibility of developing completely different transaction standards than those currently in force. It can also be tentatively stated that the foundations of the new payment system may herald a change in attitude towards banks, stemming from the increasingly frequent discussions about state digital currencies (likely held by central banks). Undoubtedly, the impending post-Covid economic crisis and the fear of another " big to fail" . It should be noted that the financial consequences for banks of the agreement proposed by the Polish Financial Supervision Authority between banks and Swiss franc borrowers in connection with the economic crisis and the new requirements governed by the CRD 5/CRR II package are not fully known.
Virtual currencies are also becoming an obvious alternative to the above, including the Ripple network, which, with its real-time settlement protocol (RTXP) in the RippleNet network, could be a viable transaction tool offered by payment market entities. However, there is no regulation in this area yet, so joining a transaction system based on this network carries certain legal risks for the obligated institution. However, the functional features of this network, such as xRapid, responsible for the ability to conduct international transactions while simultaneously converting fiat money to the XRP cryptocurrency; xCurrent, which allows for instant settlement and tracking of payments between RippleNet network members; and xVia, which, thanks to its API-based nature, allows banks to conduct transactions through other partners connected to the RippleNet network, allow for its successful application in Polish legal environments. This solution has not yet been widely adopted by entities in the Polish financial market, likely due to concerns about regulatory objections. However, banks such as Standard Chartered, RBC, SBI, and Axis have already launched partnerships with Ripple, and even in January of this year, Axis Bank revealed that its RippleNet connection with Standard Chartered and RakBank in the United Arab Emirates is operational. Considering current regulatory trends and the actions of key global players, a drastic change in the regulator's approach to virtual currencies is expected in the near future. This is not at all related to national regulations, but rather to European regulations and the overall global situation caused by the crisis triggered by the Covid-19 pandemic. The resulting cost reductions require the use of cheaper, faster, and more customer-focused solutions. This, given the relatively intense European competition in the payments market, means that the regulator will also begin to favor alternative solutions, provided they meet security and regulatory compliance standards. Of course, there are other payment networks that are separate from the American SWIFT system (e.g. SEPA, local for the EU market, CIPS – China, SPFS – Russia), but from the perspective of the problems of a modern European payment institution, they are irrelevant, as they do not solve the problem of efficient execution of international/trans-European transactions.
The use of new types of payment networks, from the perspective of both states and payment institutions, will be a breakthrough in the field of payments, enabling the introduction of new market standards (e.g., transfer monitoring, eliminating the problem of late-paid invoices, and low-cost, instant transfers). Payment institutions interested in alternative financial systems should now consider the blockchain market, as it is most accessible to licensed entities or, in the case of transactions in the EU market, obtaining PIS and AIS licenses, as they offer a wide range of possibilities, yet are not used in the current market realities.
