SWIFT & Ripple (XRP): Frenemies or Just Foes?

Key Points

• Multiple crypto news sources reported SWIFT would test XRP and Hedera tokens in November, but no official SWIFT announcements confirm these trials.

• November marks the deadline for adopting the ISO 20022 international payments standard, making it an unlikely time for SWIFT to run experimental cryptocurrency tests.

• Long-term crypto integration with SWIFT seems likely, but the timeline will be slower and more cautious than current rumors suggest.

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The XRP (Ripple) (CRYPTO: XRP) investor community is celebrating some juicy rumors these days.

Near the end of August, several crypto news sources said that the Society for Worldwide Interbank Financial Telecommunication (SWIFT) was running test transactions using XRP and Hedera (CRYPTO: HBAR) tokens.

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That could be fantastic news for XRP owners. The SWIFT system handles about $190 trillion of international money transfers per year. Collecting just a tiny transaction fee for even a small portion of that massive business pie would add a ton of value to the XRP ecosystem.

But it's not all roses and rainbows. This week, SWIFT and Ripple representatives have been duking it out over social media channels. Coming so soon after the technical trial reports, I'm left wondering whether the suggested co-opetition is more like a classic head-to-head competition instead.

The crypto rumor mill loves a good SWIFT story

Plenty of crypto-oriented news sites reported that the SWIFT organization will run XRP and Hedera tests in November. The group has indeed explored cryptocurrencies and digital transaction ledgers before, and the pending ISO 20022 cross-border transactions standard has a crypto section in its official FAQ. So the idea of XRP trials looks plausible at a glance.

At the same time, the ISO standard doesn't specify any particular crypto names that would be useful, approved, or recommended for these ISO-compliant international payments. Instead, it's up to each cryptocurrency to meet the messaging requirements of the ISO 20022 rules. From bank transaction codes and data source schemes to nitty-gritty details like character encoding and fee collection addresses, that's a really elaborate rulebook.

But if thousands of old-school banks can do it, why not Ripple Labs or any other cryptocurrency group?

SWIFT's timing doesn't add up for XRP trials

The thing is, I can't find an announcement of XRP and Hedera testing in SWIFT's news channels. There's something fishy about these collaboration reports.

November is special because that's the deadline for adopting the new ISO 20022 standard. The old MT standard starts to phase out at this point, to be discontinued in November 2026. By the end of 2025, the sophisticated ISO standard should apply to the vast majority of international money transfers, both large and small.

And that would be a really weird time to run a technical test of specific cryptocurrency ledgers.

Sure, the incoming ISO standard opens the door for blockchain-based transactions, but the provisions are a work in progress. For now, blockchain addresses, smart contracts, and other messages can be included in ISO-compliant transactions, but they don't have to be there and the SWIFT system certainly hasn't specified the format of any crypto messaging yet. That's slated for a future revision of ISO 20022, and I don't even see a specific target year for that switch.

Image source: Getty Images.

SWIFT's innovation chief explains why code isn't everything

The rumor mill can set investor expectations and move markets, even if the gossip doesn't make sense.

In a LinkedIn post last Wednesday, Tom Zschach, SWIFT's chief innovation officer, argued that public blockchains "absolutely have a role" in international transactions (or any modern financial process, really), but so does Swift.

"Code alone doesn't settle billion-dollar disputes," Zschach said. The SWIFT organization's "trust scaffolding" combined with fast and secure technology like XRP or Ethereum (CRYPTO: ETH) can achieve amazing results.

I get it. Ripple Labs impressed investors such as yours truly by building local banking partnerships and meeting trade regulations in dozens of countries. These achievements can't hold a candle to SWIFT's truly global presence and more than 11,500 banks.

It's also true that Zschach has a horse in this race, and should be expected to make arguments in SWIFT's favor. Still, there's some truth here.

Why patience beats hype in the payments game

I expect the SWIFT system to integrate tools like XRP and Ethereum over time, whether there's any substance to the November test-run rumors or not. It's going to be a slow and careful process, though. The XRP system is definitely not just a few months away from a systemwide SWIFT partnership with massive business results.

The XRP tokens in my digital portfolio are there for the long haul. The current price seems to account for a lot of future promise but very few of the risks along the way. That's why XRP is more of a "hold on tight" recommendation than a "strong buy" idea right now.

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Anders Bylund has positions in Ethereum and XRP. The Motley Fool has positions in and recommends Ethereum and XRP. The Motley Fool recommends Hedera. The Motley Fool has a disclosure policy.