The current system used to send money around the globe is slow and outdated. It’s like using a fax machine in an era of high speed internet.
When a person in one country (A) sends money to a person on another country (B), there is a complex process behind the scenes to make that transaction happen.
It may be surprising, but the money isn’t electronically sent from A to B.
You can’t literally wire money, you can only wire a message that money wants to be sent. One way to look at this process is through invoicing.
If I sent you an invoice by email, you get it immediately.
You may even click “pay now” which sends me back a message that you have approved the transaction and have released the funds.
But the money isn’t magically in my account. I have to wait for the banks to move the funds, which can take days.
The current system to move money across borders has been in place for decades , and requires that banks have funded accounts in different countries.
Lots of transactions happen from A to B, and from B to A, in a single day, so the banks keep track of those, and settle up periodically.
Accounts called “nostro vostro” accounts are used to fund payouts once all the transactions are settled.
This can take several days, which is why most people can’t send money instantly through their bank.
The system that keeps track of the transactions is called SWIFT, and is best described as a messaging or communication system.
However, blockchain technology offers a new option for these transactions, using tokens that are sent fast and inexpensively.
This means there is the option to “settle instantly”.
ISO 20022 are standards around how those transactions are communicated via software. Tokens aren’t ISO 20022 compliant, that is a common mislabel.
Instead, businesses that use the blockchain for payments can use the standards defined via ISO 20022, which may also include the use of specific tokens connected to the business (e.g. $XDC, $XLM, $XRP, $IOTA).
Making changes to the global payments network is a massive project, so the changes are being rolled out in phases. One phase impacts the U.S. banking system and is expected to upgrade in November 2022.