Citi has taken a significant step in broadening the reach of its tokenized deposits by integrating with Swift’s newly launched distributed ledger. This move allows the bank to offer its digital deposit services beyond its own network of branches and clients, marking a pivotal development in the evolution of blockchain-based payments.
Overcoming the Limitations of Proprietary Ledgers
Tokenized deposits, which are digital representations of traditional bank deposits, have gained traction among financial institutions. However, a major challenge has been their confinement to individual banks’ proprietary systems. As Harvey Li, founder of Tokenization Insight, explains, “A tokenized deposit works most easily when payer and beneficiary are customers of the same bank. Once money needs to cross into another bank, the advantage of a proprietary ledger becomes its central limitation.”
To address this, banks have sought common coordination mechanisms. Swift, with its extensive network of 11,500 banks and securities firms across 200 countries, provides a solution by enabling interoperability between disparate systems. By using Swift’s messaging infrastructure, banks can coordinate transactions across their respective ledgers, making cross-bank tokenized payments feasible.
Citi’s Integration with Swift’s Blockchain
Citi began using Swift’s distributed ledger this week, becoming one of the first banks to do so. The integration builds on Citi Token Services, launched two years ago, which facilitates near-instant movement of tokenized deposits within Citi’s network, available around the clock, including weekends and after-hours.
Debopama Sen, Citi’s global head of payments, highlighted the ease of integration: “The technology exists today; the technology is the easy part. Even the integration is not that hard if you have a level of sophistication, security and experience.” She noted that Swift’s blockchain uses the same standards and structured data as its traditional network, which should ease adoption for the broader banking community.
Swift’s Network Effect and Adoption
Swift’s vast user base provides a significant advantage. The organization’s traditional messaging system, while sometimes criticized for delays, has been improved with features like payment tracking dashboards, and Swift reports that 75% of payments now reach their destination within 10 minutes. The new blockchain ledger offers immutable messaging and builds on Swift’s established trust and resilience.
Citi has already conducted multiple transactions with other banks in different countries through the new system. Sen emphasized the importance of network adoption: “The adoption is more likely if it is interoperable with fiat and with everything else.” She envisions a future where more banks join the ledger, enabling faster settlement of payments at a larger scale.
Addressing 24/7 Payment Risks
Operating around the clock introduces new fraud risks, but Citi is well-prepared. Sen pointed to Citi Payments Express, which operates in over 20 markets and handles nearly 10 million transactions daily, many occurring after hours to support e-commerce. “We do cater to that, and our risk management also caters to that,” she said, emphasizing the need for high automation and flexible scale.
The Road Ahead for Interoperable Payments
While other consortia are exploring blockchain-based payments, Citi’s partnership with Swift demonstrates a practical approach to achieving interoperability. Sen noted that clients will require multiple options, and interoperability between these options is crucial. “Clients look for one integration point, and they want you to deal with the complexity so that they can focus on their commercial business model,” she explained.
As Swift’s blockchain ledger and traditional network run concurrently, the transition will be gradual. Sen concluded, “We envisage a future where more and more banks are able to use the ledger, that then enables velocity of movement of settlements of payments at a much higher scale. But I think it’s going to be a journey.”