Is Trump's attack on SWIFT about Iran or digital supremacy?

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  1. SWIFT is a global provider of banking transaction services based in Belgium
  2. The United States says SWIFT should cease financial transactions with Iran or face punishments
  3. Ripple is a U.S.-based potential SWIFT competitor that provides payment services based on cryptocurrency
  4. US marginalization of SWIFT could help pave way for Ripple to edge into market

On June 6, the Financial Times reported the administration of President Donald J. Trump is planning punishments for any company doing business with Iran. A company that could be affected by U.S. sanctions is the Society for Worldwide Interbank Financial Telecommunication, commonly known as SWIFT. Founded in 1973, SWIFT is a global provider of secure financial messaging and transaction services commonly used by banks around the world.

The United States has stated that SWIFT must cease financial transactions with Iran or face frozen assets and other punishments.

But is the Trump administration’s demand really about Iran? Or is it an attempt by the United States government to conquer the international payment market and its data?

Why US dominates digital economy

The United States dominates most digital markets via search engines, social media, website builders and operating systems based in the country. Through these platforms and others, the United States likely has access to the data and information of not only American citizens, but citizens and companies worldwide. This unique access to worldwide data is the basis of the United States’ primacy in the digital economy.

However, one essential item is missing in the country’s data bucket: control of international payment transactions.

SWIFT is a cooperative company that says it connects more than 11,000 financial institutions worldwide. It maintains a secure messaging system banks use for international transactions. The company is headquartered in Belgium, but has data centers in the Netherlands and United States, with backup facilities in Switzerland.

SWIFT values its neutrality and goes to great lengths to prevent outside parties gaining access to its financial messages and transaction records.

The U.S. National Security Agency (NSA) has allegedly attempted to gain illegal access to SWIFT. In April 2017, the American Banker reported that the NSA had managed to gain access to SWIFT data on some Middle Eastern banks by hacking a third-party facilitator of SWIFT connectivity located in Dubai. On June 6, the Financial Times reported that in 2006 the United States had hacked SWIFT’s U.S. servers to gain access to international financial transactions.

A crypto challenger emerges

An American competitor to SWIFT is the U.S.-based crypto company Ripple. Ripple provides an international payment system based on cryptocurrency. Ripple is promoting its system as an alternative to SWIFT for fast international transactions between banks.

On June 7, the Financial Times reported Ripple has a $15 billion war chest to finance a hoped-for takeover of the international payment market. The company was founded in 2012. To date, more than 100 financial institutions have signed up with Ripple, which establishes it as a potential competitor to SWIFT.

A takeover of the international payment market by Ripple – a California-based company that makes its transactions in a distributed ledger – would be important for the United States. If Ripple manages to displace SWIFT as the world’s primary facilitator of international banking transactions, it would mean a neutral international nonprofit organization (SWIFT) would be replaced by a for-profit company (Ripple) subject to U.S. laws governing international financial transactions.

American-owned Ripple must abide by U.S. law. If the U.S. government wanted access to the data of all its payment transactions, the company would be obliged to cooperate. Even if a legal government seizure of records didn’t occur, there’s a considerable chance of a breach via a software backdoor to the data. Outsiders can’t verify the data security of Ripple.

In December 2017, SWIFT published an opinion article about blockchain technology (which is used by Ripple) in an IM Forum. The article claimed blockchain cannot yet handle one million financial transactions a minute, as SWIFT says it currently does. The article stated that a standard for international transactions should carry money from national banks, backed by governments instead of cryptocurrencies with no official backing or only the backing of a commercial company.

Financial transactions are not secure, because encrypted transactions might be reverse-engineered. A semi-centralized version of blockchain technology such as Ripple would be the next step in more secure payments worldwide. But what implications does an American company owning the financial transaction data of the world have on a socioeconomic scale?

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