"CPN: Advancing Towards a Digital Native SWIFT – Populous"

# Key Takeaways The rapid advancement of the digital age has exponentially increased global connectivity, yet international remittance systems remain tethered to outdated networks. A notable example is the SWIFT network, the global standard for financial messaging, which can take 1-5 business days for cross-border payments and incurs high intermediary fees. On April 22, 2025, Circle, the issuer of USDC stablecoin, introduced the Circle Payments Network (CPN). This innovative system integrates stablecoins and blockchain technology into financial settlement processes, empowering institutions and service networks to enable swift and cost-effective cross-border payments and remittances for users. Circle’s CPN launch closely follows the debut of Plasma, a blockchain optimized for USDT transactions. With U.S. legislation on stablecoins expected to pass amid rapid market growth, USDC and USDT are likely to pursue different paths while aiming for similar objectives. --- # Background – Obsolete Remittance Networks "Ignoring technological change in a financial system based upon technology is like a mouse starving to death because someone moved their cheese." – Chris Skinner ## SWIFT: The Standard for International Remittance SWIFT, the Society for Worldwide Interbank Financial Telecommunication, was founded in 1973 in Belgium to provide a secure and standardized messaging network for international transfers. Contrary to popular belief, SWIFT doesn't physically move money; it transmits payment instructions securely between banks. Before SWIFT, international transfers depended on the telecommunication system Telex, which was slow, error-prone, and lacked proper security. To address these inefficiencies, 239 banks came together in Brussels to establish SWIFT, aimed at standardizing global financial communication. Since its inception, SWIFT has grown rapidly across continents like Asia, Africa, and Latin America. Through consistent updates and introducing advanced messaging standards like ISO 20022, SWIFT now processes over 50 million messages daily across more than 200 countries. Despite its widespread adoption, SWIFT remittance processes often involve intermediary banks due to the lack of direct account relationships between the sending and receiving banks. This intermediary chain, combined with time zone differences and non-operational periods like weekends, results in 1-5 business days of delays. Moreover, the involvement of multiple banks increases fees, often aggravated by unfavorable exchange rates. --- ## Alternative Global Remittance Networks While SWIFT remains the dominant system, other networks serve specific regions, sometimes offering lower fees and faster speeds. Examples include: - **CIPS (Cross-Border Interbank Payment System):** Developed by the People’s Bank of China, it facilitates yuan-based remittances, targeting the expansion of yuan usage in Asia. - **SPFS (System for Transfer of Financial Messages):** Created by Russia’s Central Bank to provide an alternative for Russian institutions amid SWIFT-related sanctions. - **ACUMER:** An Iranian alternative remittance system designed to bypass U.S. sanctions and operate outside SWIFT. These systems, while sometimes more cost-efficient and faster than SWIFT, lack the global reach and universal applicability that SWIFT offers, presenting limitations in scalability and functionality. --- ## The Need for a Digital-Native System As the world becomes increasingly interconnected through advancements in technology and transportation, cross-border economic activities are accelerating. Ironically, global remittance systems remain anchored in outdated infrastructures. This reflects not a lack of technology but inherent complexities in maintaining trust within financial networks. Blockchain technology, optimized for decentralized, incentive-driven networks, presents a groundbreaking alternative for global finance. It offers permissionless and trustless mechanisms suited for seamless international transactions. Circle's Circle Payments Network (CPN) is an effort to introduce blockchain-powered innovations into the remittance infrastructure. --- # Implications – CPN: Revolutionizing Global Payments "By orchestrating stablecoin payments, Circle Payments Network enables payment providers to unlock new markets and new business models faster than ever before." – Nikhil Chandhok ## Overview of the Circle Payments Network (CPN) On April 22, 2025, Circle unveiled the Circle Payments Network (CPN), a standardized global framework for transferring value, leveraging blockchain and regulated stablecoins like USDC and EURC. Rather than being a blockchain itself, CPN integrates these stablecoins with existing public blockchain infrastructures while allowing interoperability with traditional financial institutions. It functions as a coordination layer, acting as a marketplace for financial institutions instead of directly moving funds. Real-time settlement across borders, time zones, and currencies is made possible through blockchain-based operations. Unlike SWIFT, CPN reduces the number of intermediary institutions involved in transactions to two layers: the Originating Financial Institution (OFI) and the Beneficiary Financial Institution (BFI). This significantly streamlines the payment process, cutting down on transaction times and costs. --- ## Key Participants in CPN CPN includes four main participants: 1. **Governing Body (Circle):** Sets operational rules, ensures compliance, develops core infrastructure (e.g., APIs, SDKs), maintains network security, and sanctions eligible institutions and services. 2. **Participating Financial Institutions (PFIs):** Includes banks, payment service providers, digital asset institutions, and other regulated entities functioning as OFIs or BFIs in transactions. 3. **End Users:** Individuals and organizations utilizing CPN indirectly through connected financial service providers without needing awareness of the underlying infrastructure. 4. **Service Providers:** Entities offering ancillary services like exchange, wallet infrastructure, custody, risk management, and compliance monitoring. --- ## How CPN Works Here’s how a transaction via CPN proceeds: 1. A sender requests an OFI to transfer dollars to a recipient in Philippine pesos. 2. The OFI requests a cost quote, including FX rates and fees, from CPN, which queries BFIs. 3. CPN provides the quote to the OFI, which relays it to the sender. 4. After approval, the transaction progresses through encrypted, travel rule-compliant channels. 5. Funds are settled via a blockchain transaction in USDC, with conversion and delivery in pesos executed by the BFI. 6. Completion is confirmed across parties, finalizing the process. As CPN evolves, it plans to fully transition from an off-chain API model to an on-chain smart contract architecture, enhancing efficiency, security, and transparency. --- ## The Impending Impact of CPN Through CPN, Circle aims to revolutionize international payments by reducing delays, costs, and inefficiencies associated with traditional systems. Its adoption could benefit global supply chain companies by reducing cash flow constraints, enabling cheaper and faster transactions for individual users, and empowering fintech developers to innovate new services atop the network. --- ## The Onset of the Stablecoin War? Circle’s launch of CPN closely follows the unveiling of Plasma, a blockchain optimized for USDT remittances. Unlike Circle’s reliance on established blockchain infrastructures, Plasma operates as a dedicated sidechain of the Bitcoin network, eliminating USDT remittance fees—a move that has garnered considerable interest from institutions and the community, given Tether’s association with Bitfinex. USDC and USDT may appear similar to end users but differ significantly in operational philosophy. USDC adheres to stringent U.S. regulations, while USDT operates in a regulatory gray area, enabling it to allocate resources more aggressively and achieve higher revenues. With critical U.S. stablecoin legislation (e.g., GENIUS, STABLE) anticipated, competition between these two stablecoin giants to dominate the digital economy landscape is set to intensify. How their divergent strategies will influence the future of cross-border payments will be intriguing to observe.