In today's hyper-globalized economy, when money, products, and services are transferred across the globe, the necessity for an organisation that connects all banks is evident.

The creation of SWIFT (Society for Worldwide Interbank Financial Telecommunication), a member-owned messaging network that enables financial institutions to send secure communications as well as verify and settle interbank transactions, was therefore prompted by the expansion of globalisation and our highly interconnected and centralised financial system in 1973.

More than 11,000 financial institutions in 200 countries and territories are connected by SWIFT, which has long operated as a cohesive and reliable institution among a complex and unstable global order.

But recently, the exclusion of many sanctioned Iranian and Russian banks from SWIFT prompted China and other nations to launch competing alternative intermediaries. This has led to the wide-scale rethinking of how to structure international finance.

While barring certain institutions from SWIFT due to connections with state-sponsored violence, terror or other criminal activity is appropriate, fractionalizing centralized entities into siloed, competing groups poses a long-term threat to global finance. Changing attitudes toward centralized finance and innovative fintech applications further undermine the current financial system and highlight its shortcomings.

Meanwhile, the rise of blockchain-based trading solutions has led those in the traditional financial sector to question the role of intermediaries. There is a growing consideration into how this technology can enhance the speed and frequency of interbank transactions.

After all, the main objective of the cryptocurrency movement, including Bitcoin, was to overthrow the apparent unfair financial system. This system, which was dominated by big banks and financial institutions, was especially effective in the years following the 2008 financial crisis at controlling and censoring the global populace.

Financial institutions are increasingly accepting blockchain as a technology, crypto as an investment opportunity, and DeFi as a sandbox for creative financial products, despite being mainly against crypto and blockchain until a few years ago.

This acknowledgment of blockchain's benefits demonstrates how well it can eliminate middlemen. Recent news that SWIFT is experimenting with interoperable on-chain token transfers and tokenization in partnership with over 12 major financial institutions further validated this.

Message routing between legacy banking systems is being made easier by Chainlink's Cross-Chain Interoperability Protocol (CCIP) and a public Ethereum testnet, in addition to SWIFT's messaging technology. The notion that blockchain technology and digital assets are acceptable infrastructure elements that banks should and will use should be validated by this alone.

But it’s not totally clear where this adoption could go from here, as SWIFT’s use of CCIP simply gives an intermediary a new capability in the form of blockchain.

What if we could remove the intermediaries?

It’s widely acknowledged that blockchain technology has the potential to significantly enhance the financial industry’s efficiency by diminishing its reliance on intermediaries. But this current practicality is hindered by the intricate nature of reforming a deeply entrenched, centuries-old system.

Rather than pursuing an immediate overhaul, the emphasis should instead shift towards making gradual strides in reducing dependence on these financial intermediaries. The path to replacing intermediaries with blockchain technology necessitates the development of use cases, along with achieving interoperability among various blockchains and traditional banking systems.

This calls for not only showcasing the technological advantages of the blockchain in an enterprise context, particularly its cost-effectiveness and security, but also enabling interoperability across dozens of disconnected blockchain networks. Blockchains are not meant to be data silos; they are not meant to share data or transfer assets between one another. Bridges, sidechains, and cross-chain platforms are common ways to increase blockchain interoperability; nevertheless, each has its own set of complications, security flaws, and possible compliance issues.

Relying on vulnerable smart contracts to connect disparate blockchain networks and guaranteeing restricted interoperability are major obstacles to adopting blockchain technology for financial operations. Given the decades-long history of technology infrastructure deployment, the likelihood of all financial institutions adopting the same blockchain network at the same time appears remote. As a result, it is clear that middlemen are needed, as demonstrated by the creation of SWIFT to ease cross-bank transfers.

But that means the fintech industry, which sits squarely between the finance and blockchain worlds, must develop solutions and protocols to link these isolated data silos. A SWIFT report from August 2023 stated that “firms prefer to leverage their existing infrastructure, manage implementations and proven business processes to connect to blockchain ledgers, where tokens are recorded in a way that is both compliant and secure.”

It makes sense that financial organisations would not want to give up on their current infrastructure, thus the solution is to incorporate new technology across systems that utilise different blockchains. Institutions can engage in convenient and cost-effective transfers by establishing a "trusted network" and integrating organisations in an efficient and loosely connected manner that allows for the safe exchange of data and value.

Atomic-swap transactions are essential for making sure that transactions go off without a hitch, particularly when working with older legacy systems and different blockchains. Throughout the transaction lifecycle, they support the preservation of consistency and dependability.

Moreover, they also contribute to enhancing overall asset transfer security, especially against threats like unauthorized access attempts and manipulation of data. They do this by establishing a secure communication network that supports essential operations like authentication and encryption. This means that the information and transactions within the system are better protected from potential risks.

It’s unlikely that SWIFT’s dominance over the transfer of financial information and messages will be broken soon, but its research into interoperable blockchains and tokenization provides major hope toward reducing the inefficiencies caused by intermediaries — such as delays in transactions, additional costs and fees, dependency risks, lack of transparency and compliance challenges. Recognizing SWIFT as a legitimate and necessary financial institution while building the necessary infrastructure to do what it does but more efficiently, affordably and securely provides the best short-term path toward a future free from middlemen.

Regardless of what comes from SWIFT’s experiments with blockchain, institutional adoption of blockchain technology will continue to grow as 97% of institutional investors believe tokenization will revolutionize asset management. Meeting this demand and bridging these two disconnected ecosystems can only be done through interoperability and automation, which can do what intermediaries do but cheaper and faster.

The CEO and co-founder of Kima is Eitan Katz. Eitan was a seasoned executive with a notable experience who held leadership positions at HP, HPE, BMC, and the IDF (Intelligence/8200) before joining Kima. Among his many achievements are the creation of HP's Global Innovation and Incubation programme, the direction of HPE's Enterprise Mobile platform, the founding member of Aegis, the first MPC-based bitcoin wallet, and 3X. Eitan offers a distinct viewpoint on deep technology, leadership, strategy, and execution because to his background in the Elite Israeli Intelligence Forces and life experience.