SWIFT Warns ‘Digital Islands’ Could Fragment Global Payment Systems
Tom Zschach urges industry to avoid siloed blockchain systems by focusing on interoperability, regulation, and scalable use cases
The global shift toward digital assets like stablecoins—digital tokens pegged to fiat currencies—and tokenized deposits, where bank-issued liabilities are recorded on blockchain systems, is gaining traction among policymakers and institutions.
However, while interest is accelerating, meaningful integration into the global financial system remains elusive.
Tom Zschach, SWIFT's Chief Innovation Officer, sees three key conditions for digital assets to move beyond experimentation and into mainstream financial infrastructure:
Regulatory clarity, enterprise-grade use cases that can scale, and seamless interoperability with existing systems.
“We need clear rules. We need use cases that actually scale. And most importantly, we need integration into financial market infrastructure,” Zschach said during a panel discussion in London. “These arbitrary lines used to describe the introduction of crypto are missing an important part of the story.”
According to him, if these gaps aren’t addressed, the industry may fall into a trap that the financial world faced decades ago—isolated systems unable to communicate with each other.
Avoiding a Return to Disconnection
Zschach delivered his comments at the FT Live Digital Assets Summit, held May 6–7 at Convene 155 Bishopsgate in London. Representing SWIFT—the messaging backbone for 11,500 financial institutions across more than 200 countries—he offered a candid view of the risks associated with fragmented digital asset ecosystems.
“SWIFT was started primarily because domestic payment systems didn’t speak to each other,” he said. “Now we have a fantastic opportunity to recreate those problems again.”
He warned that as new digital networks are launched—whether built on blockchain, centralized systems, or something else—failing to interconnect them could result in isolated networks he called “digital islands.”
“If you don’t connect a digital asset to other assets or existing payment rails, you’re building digital islands,” he said. “Fragmentation adds cost and friction, and that’s not good for anyone.”
Zschach referenced a recent SWIFT study that quantified the economic burden of fragmentation. He noted that the original promise of blockchain—faster settlement, greater transparency, and better interoperability—could be lost if systems are developed in silos.
He also emphasized SWIFT’s agnostic approach to technologies and business models. “We don’t advocate for any specific digital asset,” he said. “Whether it’s a central bank digital currency (CBDC) or a tokenized fund, centralized or decentralized tech, we’ll support it.”
He added with a touch of humor: “If you want to use carrier pigeons, we’ll work with that too—just send us the message.”
Stablecoins and the Push for Legislation
Much of the excitement around digital assets revolves around their potential to transform cross-border payments. Stablecoins are particularly attractive in markets like the U.S., where international payments can be slow and expensive. But Zschach made clear that traditional systems like SWIFT have not stood still.
“We’ve committed to the G20 targets,” he said. “Today, 90% of cross-border payments sent via SWIFT arrive at the destination bank in under an hour. And many are much faster than that.”
Zschach also pointed to fast-moving developments in U.S. regulation. He cited remarks from Congressman French Hill during the recent IMF and World Bank Spring Meetings in Washington, where Hill announced that by August, two bills—one on market infrastructure and another on stablecoins—would be ready for President Trump’s desk.
“Now, will it be perfect legislation? Of course not,” Zschach said. “But it’s happening. And it’s going to start with stablecoins.”
Other regions are also moving forward. SWIFT is actively participating in trials of the digital euro with the European Central Bank, covering both wholesale and retail use cases. In Japan, it is working with banks to explore a yen-collateralized stablecoin aimed at cross-border transactions.
“It’s happening everywhere,” Zschach said. “And it’s happening at a pace that’s taken a lot of people by surprise.”
Liquidity, Collateral, and Blockchain Access
As digital finance evolves, two themes emerge from SWIFT’s member institutions: the drive to tokenize collateral and the growing appetite for access to public blockchains.
“One of the killer apps we’re seeing is around collateral movement—doing it much more efficiently,” Zschach said. “It’s a major topic today, and other speakers like the London Stock Exchange and LCH (London Clearing House) are addressing it.”
He explained that banks also want direct access to assets on public blockchains for two key reasons.
“First, it’s about accessing liquidity that’s not always readily available,” he said. “Second, it’s about creating new services to serve their customers better.”
In Zschach’s view, SWIFT is well-positioned to support this shift. “That’s what we do—help our customers serve their customers better,” he said. “And what we’re hearing isn’t just from niche players. It’s widespread.”
He hinted at increased activity and announcements in this space in the months ahead, as institutions look to unlock new efficiencies and value in digital formats.
Geopolitics and the Risk of Isolation
During the audience Q&A, one attendee asked whether countries like China or Russia might eventually create parallel systems to bypass SWIFT, especially under geopolitical pressure or in response to sanctions.
Zschach didn’t deny the possibility but reiterated that such fragmentation would harm all parties involved. He said that building unconnected systems—particularly in the form of isolated digital asset networks—would undermine the core goals of global finance.
“We could start to create different networks that aren’t connected,” he warned, “but nobody wins from fragmentation. The people who are disconnecting, and those who are disconnected—nobody benefits from that.”
He also clarified how SWIFT enforces compliance and prevents misuse of its network. Rather than controlling transactions directly, SWIFT offers infrastructure governed by European law, with strict access controls and permissioning managed by its member banks.
“You can't just join the SWIFT network and start sending payments to whoever you want,” he said. “It’s a mature system, with built-in frameworks for access, privacy, and compliance.”
As digital innovation continues accelerating, SWIFT’s message remains rooted in its founding principle: interoperability is not optional. Without it, even the most promising technologies may end up stranded on their own digital islands.