How Swift Actually Works and Why Crypto Gets It Wrong | Tom Zschach

**Tom Zschach** (0:00)
I don't know how you use something to settle. That's not money, and a token's not money.

**Amanda Cassatt** (0:04)
I'm Amanda Cassatt, and you're watching Endgame. You called Ripple a fax machine in October. I asked the Ripple holder why I should invest in XRP.
They said, imagine being able to invest in Swift. To which I said, okay, why would I want to invest in Swift? And they said, do you know how Swift works? And I said, no, do you know how Swift works? And they said, no.
Like I'm four years old, how does Swift work?

**Tom Zschach** (0:30)
It's a secure financial messaging network. So let's think about what it doesn't do. You don't, it doesn't issue tokens. It doesn't store value. It doesn't do settlement. It's not a custodian. It's the fabric that ties all of those different institutions and participants together. If you go talk to a treasurer, corporate treasurer and a S&P 500 company, right? And you said to them, hey, we got this new way of doing payments. It's faster and cheaper.
It might not always work. There's some risk in that. They'll smile like you just smiled, right? They have a really nice smile on their face. But that's really interesting. Come back to me when it works. What people miss is what they want is certainty. If I'm instructing $50 million into Singapore, it has to work.
You don't have an alternative.

**Amanda Cassatt** (1:17)
I want to start by reading a tweet from one of my favorite non-accounts, which is Gwart. I'm going to read the tweet.

**Tom Zschach** (1:26)
Okay.

**Amanda Cassatt** (1:27)
He or she wrote, I asked a ripple holder why I should invest in XRP. They said, imagine being able to invest in Swift, to which I said, okay, why would I want to invest in Swift? And they said, do you know how Swift works? And I said, no. Do you know how Swift works? And they said, no.
So my question is, like I'm four years old, how does Swift work?

**Tom Zschach** (1:51)
That's a great place to start because I find there's a lot of misconceptions in terms of what Swift is and how it works. So it's a secure financial messaging network, but it's a network. So let's think about what it doesn't do. You don't, it doesn't issue tokens. It doesn't store value. It doesn't do settlement. It's not a custodian. It's the fabric that ties all of these different institutions and participants together.
About half of the traffic on the network is from cross-border payments. But the other half, which most people don't know, is actually securities and foreign exchange. So all of that messaging takes place to coordinate the settlement, not do the settlement, but to coordinate the settlement, particularly across border.

**Amanda Cassatt** (2:33)
So Swift processes 68 million messages on a single peak day. That's so crazy. And CLS settles eight trillion in a day without breaking. Yeah.
Take me through what actually happens to a dollar if we're going from a bank in Lagos to a bank in Frankfurt. What's the blow by blow?

**Tom Zschach** (2:54)
Yeah. So it's really unique. And I like to say that $50 is not 50 million, right? The whole retail environments completely didn't institutional business. And in institutional business and between banks, you're not moving value from one wallet to the next. I mean, ultimately that happens. What you're actually doing is settling in what they call central bank money, and you're coordinating the liabilities on balance sheets between two banks. There's not a matter of taking $50 in one wallet and put it in another wallet. It's all designed to make sure that banks don't get out of sync in terms of what they own and what their liabilities are. And that's really what kind of the basis for corresponding banking is it's certainly the basis for foreign exchange settlement. You know, there's not enough cash in the world to run the foreign exchange market. You know, you mentioned $8 trillion a day. CLS had a record day at the end of last year. It was almost $23 trillion in 18 currencies. There's literally not enough cash to grow subtle foreign exchange in the world. So you need these utilities.
But when it comes down to it, it's settling at central banks, which does involve commercial banks and their reserve accounts.
But it's also synchronizing the liabilities, not just moving value between accounts. It's really key differentiator.

**Amanda Cassatt** (4:08)
So the way Swift makes money is it takes some bips out of each of these transactions, right?

**Tom Zschach** (4:13)
No.

**Amanda Cassatt** (4:14)
How does it make money?

**Tom Zschach** (4:16)