IBM's New Swift Connection Is One More Headache for XRP Investors

Let's talk about international payments. I have news for you, courtesy of International Business Machines (NYSE:IBM), but a tiny history lesson seems appropriate first.

The Swift cooperative was founded in 1973 because banks wanted something better than Telex -- a clunky international messaging system from the 1930s that just happened to handle payments. Swift didn't invent new money. It just gave banks a better way to talk to each other across national borders.

Half a century later, Swift is pulling the same trick again. Blockchain technology was supposed to make it obsolete, but the group made it work with banks instead. On Sept. 24, IBM showed up with the adapter cables: its Digital Asset Haven platform can now plug into Swift's shared blockchain ledger, where 17 pilot institutions are moving tokenized deposits around the clock.

Image source: The Motley Fool.

Bad news for the bridge

Big Blue's involvement is potentially bad news for XRP (CRYPTO:XRP) and its investors.

The idea behind XRP investments is that banks hate parking cash in foreign accounts, so they'll use XRP as a quick bridge between currencies. Buy the bridge, profit from the traffic.

Swift's answer is less exciting and far more bank-friendly. Why rent somebody else's bridge when the banks can move their own money on a ledger they already share? IBM's Digital Asset Haven brings a translator and a vault to the table. Banks send standard ISO 20022 messages, and the platform turns them into tokenized deposit transfers on Swift's blockchain ledger while keeping the security keys locked down.

And IBM's Swift integration comes while Ripple is leaning away from its own XRP token anyway. Ripple's payment volume is soaring, and Ripple Labs is reportedly considering an initial public offering (IPO). But Ripple is increasingly settling transactions with the predictable Ripple USD (CRYPTO:RLUSD) stablecoin, leaving volatile XRP pricing out of the process.

Slow progress, real pressure

This is a beta release, and 17 pilot institutions are a sliver of Swift's massive membership. Tokenized deposits may take years to scale. Still, each step Swift takes toward always-on digital settlement removes another reason for banks to look elsewhere.

Ripple, the company, feels some pressure, too, and it lands on the very product that's replacing XRP in Ripple's deals. RLUSD's pitch to banks is a stable, always-on digital dollar for settlement. Tokenized deposits offer the same benefits, except the money never leaves the bank's own balance sheet. If Swift's ledger scales, a bank treasurer has little reason to hold a third-party stablecoin for interbank transfers.

Custody is another overlap. Digital Asset Haven targets the same regulated institutions as Ripple's custody services, and IBM already has a foothold in most big banks' data centers. Ripple isn't cornered; it has built businesses in prime brokerage and corporate treasury management that Swift's bank-to-bank ledger doesn't touch. But the bank settlement market just got more crowded.

IBM's real prize is the hardware

On Big Blue's side of the equation, the Swift integration is relatively small potatoes. It's a beta feature for existing Digital Asset Haven clients. IBM hasn't disclosed any revenue tied to the platform, and a niche digital-asset tool would need years of broad adoption to matter at a company that booked $17.2 billion of revenue last quarter.

The second half of the announcement is more interesting. IBM is also launching an on-premises version of Digital Asset Haven, and that one runs only on IBM Z mainframes and LinuxONE servers. IBM claims a properly configured setup can hit 99.999999% availability (eight nines!), or roughly a third of a second of downtime per year. That's IBM's own target for a very specific hardware stack, but it's a fun number and a confident projection.

IBM Z sales fell 42% in the second quarter after a blockbuster z17 launch. One beta product won't fix that, and mainframe sales have always been cyclical, but it should help IBM's sales team sell computing capacity or maintenance contract renewals to global banks.

My take: check out of XRP, check out IBM

The announcement never mentions Ripple or XRP. That is the point. The dominant bank messaging network is building its digital future without either of them. XRP looked overvalued to me last week, and this news slightly lengthens its laundry list of challenges.

So I still recommend staying away from XRP as you look ahead to Ripple's rumored IPO. There's value in the Ripple system, and somebody needs to push Swift to try innovative ideas.

Meanwhile, you should take a closer look at IBM's stock, which trades at just 17 times forward earnings. As of Sept. 24, the stock is down 31% from June's all-time high with a generous dividend yield of 3%.

Anders Bylund has positions in International Business Machines. The Motley Fool has positions in and recommends International Business Machines and XRP. The Motley Fool has a disclosure policy.