In recent years, firms across the financial industry have been working intensively to embed emerging technologies into their customer offerings and back-office operations. But nascent trials are today fast being replaced by scalable, production-ready solutions.
We sat down with our Innovation team to get their insights on the technologies and trends set to shape the financial services of the future.
1. Artificial Intelligence – Tom Zschach, Chief Innovation Officer
With the rise of AI in financial services, how can institutions approach it responsibly?
As the regulatory landscape evolves, ensuring the responsible use of AI is taking centre stage. Market participants are starting to explore how they can reap the benefits of this emerging technology for their enterprise and customers, and they must consider how they can do so responsibly, both in design and deployment.
Institutions can get ahead of the curve by embedding responsible AI’s core principles of accuracy, explainability, fairness, auditability, security and privacy into all aspects of how they apply the technology to their business. Regulation is maturing and any organisation wishing to explore AI should have the right controls in place.
As we unlock the power of AI for our community, Swift is working to ensure that we’re fully aligned with the principles of responsible AI, and make sure we are consistent with emerging global standards, such as ISO 42001, the NIST AI Risk Management Framework and the EU AI Act.
Which use case for AI do you think is having the greatest impact in financial services?
AI can empower the financial community to better tackle financial crime. The R&D Swift has conducted in recent years shows that machine learning can significantly increase institutions' ability to detect the signs of fraud in transactions, as well as driving automation and creating significant cost reductions.
We’re working with major technology vendors and leading financial institutions to use federated learning to upskill our fraud detection models. Federated learning enables organisations to train AI models based on their shared datasets, without compromising on security and privacy. This increased data diversity creates a more robust, intelligent defence against fraud that multiple industry players can benefit from.
2. ISO 20022 – Rachel Levi, Global Head of Innovation Engineering
Why is the richer, structured data that ISO 20022 delivers so important for innovation?
ISO 20022 is critical to unlocking innovation in financial services. The richer, structured data that ISO 20022 delivers mitigates ambiguity, leading to improved operational efficiencies, streamlined processes as well as paving the way for firms to develop new products and services.
Take payment screening, for example. Unstructured, incomplete or missing data regularly results in exception handling, with payments delayed by slow filtering. But with ISO 20022, applications are able to screen data held in structured fields much more accurately – significantly increasing banks’ capabilities to detect signs of fraud and sanctions, while reducing the need for manual investigations.
What role will ISO 20022 play as the industry onboards emerging technologies?
No matter what the technology or innovation, data is the underlying asset and its richness and breadth directly impacts the efficacy of the technology in question. High-quality data is therefore the springboard for emerging technologies to have a real impact and for institutions to derive the most benefit from their use.
As new forms of value transfer such as tokenisation and digital assets come to the fore, a common standard in ISO 20022 will be especially important to avoid fragmentation. As we’ve demonstrated in our ongoing CBDCs experiments, the ISO 20022 format can continue to be used with digital currencies. And the rich, structured data it delivers will dramatically enhance our ability to apply AI and machine learning models to transaction data.
3. Digital currencies – Pallavi Thakur, Director, Strategy & Innovation
Large economies are reaching the advanced stages in developing their digital currencies. What trends do you see emerging?
Central Bank Digital Currency (CBDC) initiatives continue to gain momentum. In the retail CBDC space, trials across a range of Asian countries, including China, India and Japan are ongoing, while the European Central Bank is entering the next phase of its project to develop a digital euro.
Meanwhile in the wholesale market, the rise of tokenisation in securities is driving a resurgence of wholesale CBDC initiatives for the cash leg, to achieve the ultimate objective of simultaneous settlement. We expect wholesale CBDCs to advance at pace in pursuit of this goal, as demonstrated by the Swiss National Bank announcing the launch of a wholesale Swiss Franc and the Monetary Authority of Singapore planning to issue a wholesale CBDC this year.
A variety of new forms of digital money are currently being explored around the world. How is the industry preparing to integrate them into the financial system?
While CBDCs continue to occupy a central space in the debate around the future of money, other forms of value, such as tokenised deposits and stablecoins, are also being explored. But whichever new asset types are adopted, the financial industry will need to work in close collaboration to ensure they can seamlessly co-exist with existing payment infrastructures for years to come.
A key focus for us is helping to ensure global interoperability between the new digital currencies and existing payment systems. And no doubt this will be a complex challenge given the plethora of technologies, standards and protocols being used to develop them.
Swift has connected up the global financial community across borders for 50 years – not only in terms of the value that flows across the network, but also in terms of technology, standards, security, reliable and trust. And now we’re working closely with our community to ensure we can support new forms of value on our network to enable instant and frictionless value transfer in the digital paradigm.
To this end, we’re currently conducting a second phase of sandbox trials of our Swift connector solution with over 30 central and commercial banks – testing new use cases such as ‘Delivery versus Payment’ in securities transactions, trade-based trigger payments and on-chain FX trade and settlement. Look out for the results of this exciting project which will be published later in 2024.
Swift advances CBDC innovation as interlinking solution begins beta testing
30 financial institutions are experimenting with the solution in a new sandbox to explore further use cases.
4. Tokenisation – Jack Pouderoyen, Innovation Manager
How is the tokenised assets market evolving?
Significant progress has been made over the past 12-18 months, with a growing number of institutions gaining hands-on experience with tokenised assets in various trials and proofs of concept. Despite this momentum, there’s a call for a greater focus on maturing to live transactions and use cases that have clear returns and business mandates.
To get to this point, we see several key work streams picking up speed. For example, there’s an industry-wide push to enable on-chain forms of money, such as CBDCs, to drive full atomic settlement on-chain, i.e. the instant and simultaneous transfer of asset ownership and the associated payment in a transaction.
How are institutions adapting to overcome the challenges they face when transacting in digital assets?
At Swift, we see a lot of market interest in digital assets, with customers keen to support the issuance and trading of tokenised assets and to use them to unlock new sources of value. But the current multi-chain and multi-platform environment means they need to connect their institution’s systems to a plethora of blockchain networks in order to transact.
Our clients want to have access to both digital assets and traditional assets via a single window that eases the legal, operational and administrative complexities they face when connecting to multiple platforms. That’s why in 2023, we teamed up with more than a dozen financial institutions to test how our members could reuse their Swift infrastructure to access multiple public and private blockchain networks.
The experiments were highly successful, and we look forward to building out capabilities with feedback from the community later in 2024.
Swift unlocks potential of tokenisation with successful blockchain experiments
The findings have potential to remove significant friction slowing the growth of tokenised asset markets and enable them to scale globally as they mature.
