The SWIFT ban explained: how the messaging system works

Hello and welcome to Protocol Fintech. This Thursday: understanding SWIFT, the Bored Ape token, and “buy now, pay later” at the pumps.

out of the chain

I noticed that Aptosthe Meta alumni crypto project, recently described itself as taking money from Katie Haun. Haun, who left a16z last year to start her own business, is also an active angel investor, so it wouldn’t be a complete surprise if she closed the deal on her own, but I checked with her reps, and it’s makes it an investment of his company’s newly raised funds.

But what do you call this company? If you ask the SEC, it’s KRH Partners, but Haun & Co. would prefer that you not use this “placeholder”. Which puts people like me, who like to call things by their proper name, in a curious position. Pending the unveiling of the permanent Haun company name, I suggest the following placeholders:

  • The venture capital firm temporarily known as KRH Partners
  • A company does not have an LLC name
  • Our GP is too cryptolicious for a name
  • A joint from Katie Haun

In other news, Leah Zitter, who has written extensively on fintech and crypto, is contributing an article on SWIFT today. If you’ve ever needed a quick primer on the payment messaging system to send to someone, this is it.

—Owen Thomas (E-mail | Twitter)


The war in Ukraine and the resulting measures to sanction Russia have put SWIFT in the spotlight as an integral part of the global payment system, but which part? Analogies abound, each more puzzling than the next: it’s the “Gmail of the world bank”, it’s Twitter for the banks, it’s a thermostatic system.

The most common description of SWIFT is a messaging system for payment orders, not a means of transferring money. But modern money is just data entries in bank accounts. You need messages to transmit this data. And SWIFT is a database of financial institutions. If you insist on a software analogy, it’s Microsoft Outlook, Exchange and Active Directory.

SWIFT is modern, but it reflects a banking system that dates back to late medieval Italy. Italian banks gave birth to the western financial system, which is why you come across the terms “nostro” and “vostro”.

  • “Nostro” means “our” money – an account held by Bank A and held by Bank B – while “Vostro” is “your” money – an account held by Bank A and held by Bank B. From the point From Bank B’s perspective, of course, “Nostro” is “Vostro” and “Vostro” is “Nostro”.
  • When a Bank A customer wants to send money to a Bank B customer, the banks exchange payment orders on SWIFT. Bank A debits the customer’s account and credits Bank B’s “Vostro” account. Bank B reflects the transaction on its books, debits the “Nostro” account and credits the customer.
  • There is a huge amount of money in the “Nostro” and “Vostro” accounts: $27 trillion at the end of 2015, according to this McKinsey report.
  • SWIFT connects more than 11,000 banks and other organizations in more than 200 countries and territories. And not all banks have the correct “Nostro”/”Vostro” account pairings for a given transaction, which makes finding banks on SWIFT and determining which hops money should take from account to account. the other all the more useful.

The disconnection of Russian banks from SWIFT effectively distances them from this global network of accounts. The accounts are still there, but the hard part is finding them.

  • On March 2, the EU penalized Russia by finally agreeing to cut several major banks from SWIFT. European Commission President Ursula von der Leyen said it would discourage Putin’s war efforts by crippling Russia’s financial system. The sanctions were later extended to banks in Belarus as well.
  • When SWIFT debarred Iranian banks in 2012, the country subsequently lost almost half of its oil export revenue and 30% of its foreign trade.
  • Banks outside the SWIFT network could still transact with delisted Russian banks, but they would have to rely on a cost-prohibitive and error-prone paper, fax and email messaging system. These manual processes could lead to costly or even fatal errors.

Could Russia adopt alternatives? Both China and Russia have developed their own banking messaging networks. And the energy sector could be the key.

  • The biggest limitation of Russian SPFS and Chinese CIPS is the particular currencies in which they operate, ruble and yuan. SWIFT is the place to go for banks that do business in euros and dollars. SPFS has a minimal presence outside of Russia, and CIPS generates around 1% of SWIFT’s volume.
  • The dollar remains the world’s reserve currency and the dominant currency for energy transactions. That’s why bankers and politicians will want to keep an eye on Saudi Arabia, which is reportedly considering pricing oil sold to China in yuan. A yuan-denominated energy market could provide Russia with crucial support and a way around sanctions.
  • The West’s measurements are also leaking. Sberbank, although sanctioned by the United States, was not expelled from SWIFT. Germany reportedly resisted this decision due to the need to continue paying for Russian oil and gas. Still, Sberbank had to dissolve its European unit in the face of sanctions, so retaining access to SWIFT may be small consolation.

Penalties will likely get tougher over time. The EU released a fourth set of financial measures on Tuesday. Keeping track of who is safe to do business with will be crucial. In normal times, it is difficult for financial institutions to keep up. SWIFT’s KYC registry is a crucial tool, which is why expelling banks from SWIFT can have cascading effects. Finding banks willing to hold ‘Nostro’/’Vostro’ accounts will become more difficult. The SWIFT ban doesn’t just prevent banks from easily sending messages to each other; it creates the kind of risk and uncertainty in doing business that bankers hate. And that’s the point.

— Leah Zitter (Twitter)


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on the money

On protocol: Blockchain analysis is becoming the topic of conversation in Washington, including a Senate hearing with the co-founder of Chainalysis on Thursday.

FTX has partnered with AZA Finance to expand its presence in Africa. The crypto exchange’s partnership with the Kenya-based financial services company aims to increase the adoption of Web3 products and digital currencies on the African continent.

Also on protocol: Ukrainian President Volodymyr Zelenskyy signed a law to make crypto legal in Ukraine. Although the law does not make crypto legal tender, it does provide a regulatory structure for digital assets.

New Hampshire has passed a crypto-friendly bill. The bill, authored by Rep. Keith Ammon and co-sponsored by Rep. Joe Alexander, intended to attract investment and jobs in the digital asset industry to the state.

Bored Ape Yacht Club NFT holders can now claim ApeCoins. Yuga Labs plans to make the token created by ApeCoin DAO “the primary token for all new products and services.”

Crypto firms find a friendly audience for SEC complaints. Representative Tom Emmer said he has received numerous complaints from crypto firms about the SEC and accused the agency of being “heavy” with its requests for information.

Fill up now, pay later

As gasoline prices continue to rise across the country amid Russia’s invasion of Ukraine, ‘buy now, pay later’ companies like Klarna and Zip have teamed up with gas stations to provide consumers with options to spread out their payments.

Klarna and Zip are payment options at Texaco and Chevron gas stations, where you can choose to split your (now inevitably very high) gas payments into four payments due over six weeks.

Klarna’s pay later option requires you to first create an in-store digital card in the Klarna app. The virtual card feature is a way for businesses to pay later to expand their reach from online shopping to physical retail.

—Lindsey Choo (E-mail | Twitter)

Moves and hires

Michele Korver leaves FinCEN for a16z Crypto. Korver was most recently Chief Digital Currency Advisor to the Financial Crimes Agency, and is join venture capital firmthe crypto arm of as regulator.

Lydia Hylton has joined Bain Capital Crypto as a partner. Hylton was previously an investor at Redpoint Ventures. Looks like the investment firm’s gender demographic is now 7-1.

Michael Warren has joined Ripple’s Board of Directors. Warren was a senior White House adviser in the Obama administration and is chief executive of Albright Stonebridge Group.

FTX has appointed Steve Sadin as Head of Gaming Partnerships. Sadin previously ran the Warner Bros. studio. Games in Boston and will be responsible for FTX’s partnerships with major gaming brands.

Revolut CRO Alan Chang leaves to start a crypto business. Chang is said to have invested millions in the project himself and is preparing to raise $100 million for it.

Mastercard has appointed Stephanie Meltzer-Paul to lead loyalty services. Meltzer-Paul most recently worked at Inspire Brands and was Head of Loyalty and Digital Services for Dunkin Brands.

Visa is hiring undergraduate students for its crypto development program. The program is an “18-month rotational development experience” and aims to create a “strong pipeline of entry-level talent.”

Silvergate has appointed Rebecca Rettig to its board of directors. Rettig is currently general counsel for Aave Companies and was previously a partner at Manatt, Phelps & Phillips.


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Thanks for reading – see you tomorrow!

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