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Motive Insights - SWIFT Becomes A Tool Against Russia

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March 6 · Issue #295 · View online
Motive Insights
As Putin declared war on Ukraine, there have been many eyes on the debate surrounding the communications network, SWIFT, as there were calls to kick Russia out of the network. This week, the Western authorities put debate into action.
 
Founded in 1977, SWIFT - the Society for Worldwide Interbank Financial Telecommunications – is owned by two-dozen national central banks and based in Belgium, a lesser-known financial technology talent hub, and key engineering talent hub for Motive Partners. SWIFT’s 11,000+ financial firm members are equipped with terminals to communicate with the other banks in the network, as well as its own SWIFT code. So, in simple terms, it is less a payments system and more a messaging platform and it enables banks to transfer trillions of dollars each day between all countries globally, with the exception of North Korea.
 
Removing Russian banks from SWIFT, a measure viewed as being on the extreme end, has made headlines this week with the US and Britain in particular pushing to make it a reality. A move like this would be catastrophic for the Russian economy and financial system, making it near-impossible for Russians and Russian businesses to do electronic business overseas. In late August 2014, former Russian finance minister estimated that blocking Russian access to SWIFT would shrink Russia’s GDP by 5%. A move like this would surely inch Russia into a corner, but what would it mean for the rest of the world? A central part of the debate has been the potential disruption such a move would have on energy flows globally and to Europe in particular, given the region’s dependence on Russian exports, and the subsequent potential effect on energy prices. It would also affect Russia’s ability to pay outstanding debts.
 
However, as war waged in Ukraine, on Thursday this week the EU announced that it was excluding seven Russian banks from SWIFT in agreement with the US, Britain, and Canada, stopping short of those that handle energy payments. Russia’s second-largest bank VTB, Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank and VEB were chosen based on “their connections to the Russian state” and Ukraine war efforts, according to an EU official, and were each be given 10 days to wind-down their SWIFT operations. Sberbank, Russia’s largest lender, and Gazprombank have been spared because they are the main channels for payments for Russian energy, which European countries are still buying and still need.
 
What does all this mean for SWIFT? With Russia forced to find alternatives, could this impact SWIFT’s monopolistic power and longevity? In short, Russia does have other options. With threats to be removed from SWIFT after Russia annexed Crimea in 2014, Russia established its own financial electronic payments system called SPFS – the System for Transfer of Financial Messages. China has established a rival network too, CIPS (Cross-Border Interbank Payment System), albeit only currently settling in Yuan. Russian banks could use other messaging systems, apps or even email, although security, speed and cost are considerations. While Western authorities are quickly realizing the power of SWIFT as a tool against Russia, imposing a full ban requires careful consideration on a global scale as to how Russia could respond. One way or another, we can be sure that SWIFT’s next move will be under the microscope.
About the Author:
Sam Tidswell-Norrish is a Managing Director on Motive’s Investor Relations team.

Quote of the Week
Since February 28th, Equifax has begun reporting on buy-now-pay-later (BNPL) installment loans in their credit models. Previously, the plans didn’t show up on credit reports and created a blind spot for lenders who utilize information on the reports to accurately underwrite an applicant’s ability to repay. Both sides of the lending exchange benefit from this additional transparency; lenders have more information and people with limited credit histories who don’t qualify for credit cards or other traditional credit, should get a boost from the plans’ inclusion on credit reports if they pay their bills on time, according to Equifax.
Last year, BNPL transactions were projected to hit $55 billion, according to payments consulting firm Mercator Advisory Group, and the providers now have large retailer partnerships, such as Amazon, Sephora, and Priceline.
Matt Schulz, chief credit analyst at LendingTree Inc., the loan marketplace, commented:
“This is another kind of indication that everyone in the financial-services space understands just how big these buy-now-pay-later loans have become in a pretty short period of time. And they are adjusting to that reality in lots of different ways"
Motive Portfolio Highlights
  • Wilshire - The Wilshire team published the research memo “Managing through Market Drawdowns: In Case of Drawdown, Break Glass,” discussing how clients with long-term investment objectives can manage portfolios through these stressed markets. Access the full memo here.
  • InvestCloud - Christine Ciriani, CEO, Private Banking and Wealth and other industry experts discuss the goals of meeting evolving HNW client expectations in “WealthTech Talks: Meeting Evolving HNW Client Expectations in Wealth Management” this week. Register here.
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What We're Reading This Week
Crypto Donations To Ukraine Top $52 Million As Funds Pour In From Bitcoin, Ether, PolkaDot And NFTs
Santander donates €1 million to the Red Cross and waives fees on all transfers to Ukraine
TowerBook invests in Stonebridge Companies
Swedish payments institution Rocker to roll out biometric payment cards
Speedcast inks $350m credit facility
Blockchain infra startup Tenderly raises $40M after seeing 500% YoY revenue growth
Indonesian Billionaire Chairul Tanjung’s Trans Retail Teams Up With Bukalapak For Online Grocery Platform
Robot Delivery Startup Starship Secures $100M in 30 Days
Urban Outfitters Relies More on eCommerce for 2021 Sales
What 2022 could bring for private equity, in 5 charts
LendingClub CEO Cautious About Crypto
Billionaire Trio Behind Singapore’s Sea Ltd See Fortunes Tumble After Earnings Disappoint
UserZoom picks up financing from Thoma Bravo
Regulation, Protection & Privacy
EU bans seven banks from Swift network
We need to pressure regulations on climate finance
Biden’s CFTC nominees call for more powers to police crypto
Visa and Mastercard join Russian blockades
Key Hires & Talent
Hotpot Billionaire Zhang Yong Steps Down As Haidilao CEO
Macquarie appoints two managing directors and a SVP
Food for Thought
“When prosperity comes, do not use all of it.”
~Confucius
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