SWIFT

 

Introduction:

Need to transfer money overseas? Today, it is easy to walk into a bank and transfer money anywhere around the globe. But how does this happen? Behind most international money and security transfers is the SWIFT system, a vast messaging network used by banks and other financial institutions to quickly, accurately, and securely send and receive information such as money transfer instructions. Every day, nearly 10,000 SWIFT member institutions send approximately 24 million messages on the network. The SWIFT network provides a communications platform through which financial institutions exchange standardized financial messages. According to the SWIFT website, more than 10,500 corporations and financial institutions in 215 countries use this platform. SWIFT estimates that, worldwide, about 90 percent of LC and DC transactions go through the SWIFT network, but this number is likely much higher for U.S. activity since practically all banks in the United States use this service. Whenever a bank in an importing country issues a letter of credit, it sends a so-called MT700 message to the U.S. bank involved; when it releases a payment related to a documentary collection, it sends an MT400 message to the U.S. bank. The message specifies the terms of the letter of credit or the payment, including the names of the trading parties, the banks involved and the goods traded. Our SWIFT data set shows the number of MT700 and MT400 messages received by banks located in the United States by sender country at a monthly frequency from 2003 to 2012. From the fourth quarter of 2010 onward, we also know the total value of the messages in dollars. Because the value data is available for only a relatively short period, and message counts and amounts are highly correlated, we mainly use the count data for the analysis.

What is SWIFT?

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications. It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.

SWIFT assigns each financial organization a unique code that has either eight characters or 11 characters. The code is called interchangeably the bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO 9362 code. (See related: What's the difference between an IBAN and a swift code?) To understand how the code is assigned, let’s look at Italian bank UniCredit Banca, headquartered in Milan. It has the 8-character SWIFT code UNCRITMM.

The Swift code consists of 8 or 11 characters. When 8-digits code is given, it refers to the primary office. The code formatted as below;

First 4 characters - bank code (only letters)

Next 2 characters - ISO 3166-1 alpha-2 country code (only letters)

Next 2 characters - location code (letters and digits) (passive participant will have "1" in the second character)

Last 3 characters - branch code, optional ('XXX' for primary office) (letters and digits)

Currently, there are over 40,000 “live” Swift codes. The "live" codes are for the partners who are actively connected to the Swift network. On top of that, there are more than 50,000 additional codes, which are used for manual transactions. These additional codes are for the passive participants.

The registrations of Swift Codes are handled by Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) and their headquarters is located in La Hulpe, Belgium. SWIFT is the registered trademarks of S.W.I.F.T. SCRL with a registered address at Avenue Adèle 1, B-1310 La Hulpe, Belgium.

Bank Identifier Code

The Bank Identifier Code is an international code that banks use for financial transactions. Each bank has its own BIC. This way, European and international payment orders automatically arrive at the correct bank and branch. The BIC is also called a SWIFT address or SWIFT code. The BIC can be 8 or 11 characters long depending if it supplies branch information.

The World Before SWIFT

Prior to SWIFT, Telex was the only available means of message confirmation for international funds transfer. Telex was hampered by low speed, security concerns, and a free message format--in other words, Telex did not have a unified system of codes like SWIFT to name banks and describe transactions. Telex senders had to describe every transaction in sentences which were then interpreted and executed by the receiver. This led to many human errors.

To circumvent these problems, SWIFT system was formed in 1974. Seven major international banks formed a cooperative society to operate a global network that would transfer financial messages in a secure and timely manner.

Why is SWIFT Dominant?

Within three years of introduction, SWIFT membership had increased to 230 banks across five countries. Although there are other message services like Fedwire, Ripple, and CHIPS, SWIFT continues to retain its dominant position in the market. Its success is attributed to how it continually adds new message codes to transmit different financial transaction.

While SWIFT started primarily for simple payment instructions, it now sends messages for wide variety actions including security transactions and treasury transactions. Nearly 50 percent of SWIFT traffic is still for payment-based messages, but 43 percent now concern security transactions, and the remaining traffic flows to treasury transactions.

Who Uses SWIFT?

In in the beginning, SWIFT founders designed the network to facilitate communication about Treasury and correspondent transactions only. The robustness of the message format design allowed huge scalability through which SWIFT gradually expanded to provide services to the following:

• Banks

• Brokerage Institutes and Trading Houses

• Securities Dealers

• Asset Management Companies

• Clearing Houses

• Depositories

• Exchanges

• Corporate Business Houses

• Treasury Market Participants and Service Providers

• Foreign Exchange and Money Brokers

Services Offered by SWIFT

Applications—SWIFT connections enable access to a variety of applications which include real-time instruction matching for treasury and forex transactions, banking market Infrastructure for processing payment instructions between the banks, and securities market infrastructure for processing clearing and settlement instructions for payments, securities, forex, and derivatives transactions.

Business Intelligence—SWIFT has recently introduced dashboards and reporting utilities which enable the clients to get a dynamic, real-time view of monitoring the messages, activity, trade flow, and reporting. The reports enable filtering based on region, country, message types, and related parameters.

Compliance Services—Aimed at services around financial crime compliance, SWIFT offers reporting and utilities like Know Your Customer (KYC), Sanctions, and Anti-Money Laundering (AML). (See related: US And EU Sanctions Against North Korea)

Messaging, Connectivity, and Software Solutions—The core of SWIFT business resides in providing a secure, reliable, and scalable network for the smooth movement of messages. Through its various messaging hubs, software, and network connections, SWIFT offers multiple products and services which enable its end clients to send and receive transactional messages.

How international money transfers work

We might think of PayPal, Western Union, and the like as front-ends for international payments. They’re the companies with which we as consumers are familiar, but they in turn rely on other services to facilitate funds transfers.

Just as ACH and Fedwire operate as transfer networks in the US, other networks facilitate international payments. SWIFT, the Society for Worldwide Interbank Financial Telecommunication, is a key player in the global payments game. SWIFT does not actually move money; their network transmits messages between banks that allow the banks to make transfers. Rather than giving someone your bank account number, then, you use a SWIFT account number and SWIFT does the rest. They’re also not a corporation, but a cooperative owned by the banks who use the network. Based in Belgium, with a chairman from Pakistan and a CEO from Spain, SWIFT is about as international as a financial entity gets.

For large international (and domestic) transactions, there’s CHIPS. Their site boasts, “CHIPS is responsible for over 95% of USD cross-border and nearly half of all domestic wire transactions totaling $1.5 trillion daily.” Their members include the largest banks in the world, and they’re behind the scenes of most of the money transfers that fuel the global economy. Member banks combine a large number of transactions into one big transfer to another bank, and CHIPS settles the score and moves the money.

Exchange rates are always a factor in international money transfers, whether you’re sending $50 to a relative overseas or a company is paying millions to buy property in another country. Some networks will use the rate at the moment a payer initializes a transaction; others will process the payment based on the rate at the moment the payee’s bank receives the funds. And if either country involved has regulations that specify which exchange rate should be applied, the game changes again.

What Are SWIFT Payments?

SWIFT payments are a type of international transfer sent via the SWIFT international payment network.
The SWIFT international payment network is one of the largest financial messaging systems in the world. TransferWise can send or receive certain currencies via SWIFT payment.
For USD transfers over the equivalent of £24,000, TransferWise sends the money to the USA via SWIFT international transfer from our foreign currency accounts in Europe. We also send out ZAR via SWIFT.
CAD and USD can also be sent to TransferWise's currency accounts in Europe via SWIFT international transfer.
TransferWise can receive USD from many countries in the world via SWIFT payment. 

Financial messaging services

SWIFT’s messaging services are trusted and used by more than 11,000 financial institutions in more than 200 countries and territories around the world. Providing reliable, secure and efficient messaging services to our community of users, SWIFT is the backbone of global financial communication.

Our messaging services went live in 1977 to replace the Telex technology then widely used by banks to communicate instructions related to cross-border transfers. The service remains as relevant today as it was ground-breaking back then, representing the primary communications channel for financial institutions engaged in correspondent banking all around the world, and offering the most secure, cost-effective and reliable way of transmitting financial messages relating to payments, securities, treasury and trade.

Since its inception, SWIFT has played a leading role, together with its community, in the standardisation that underpins global financial messaging and its automation. The use of standardised messages and reference data ensures that data exchanged between institutions is unambiguous and machine friendly, facilitating automation, reducing costs and mitigating risks. Through SWIFT, banks, custodians, investment institutions, central banks, market infrastructures and corporate clients, can connect with one another exchanging structured electronic messages to perform common business processes, such as making payments or settling trades.

SWIFT is committed to the confidentiality, integrity and availability of its messaging services. We have controls and procedures in place to: protect message data from unauthorised disclosure; to help ensure the accuracy, completeness and validity of messages and their delivery; and to ensure our service availability requirements are met.

Operational excellence

SWIFT’s messaging services support more than 11,000 financial institutions around the world and have systemic importance for the global economy; our users trust us to deliver. As a critical technology and infrastructure provider, our objective is to ensure that our systems work securely and reliably every day, while remaining alert to new threats and opportunities.

The expertise and dedication of our staff, our long-term technology investment and renewal programmes, and our constant vigilance towards new threats, are key components in ensuring we meet this challenging commitment, day after day, year after year.

Our reputation for quality is the foundation for our users’ trust in SWIFT; we take great pride in our proven track record. We continually invest in our technology, security, people and processes to deliver on this commitment to operational excellence.

SWIFT’s approach to providing best-in-class service is founded on our highly technical and capable workforce, a structured, methodical approach to solving problems, demonstrated crisis response and industry acknowledged quality and availability.

SWIFT’s operational excellence is underscored by our zero-risk approach to failure and reflected in our approach to building highly-available solutions for the financial community. By combining a resilient topology with robust software designs and a disciplined approach to the introduction of changes, SWIFT is able to deliver services which continue to run even in the event of unforeseen issues.

Broadly speaking, we structure operational risk areas and controls around five main principles:

Effective governance sets the direction at all layers of the company and ensures that security and risk management is prioritised across the whole organisation;

Confidentiality of information is critical to the financial services industry, and SWIFT plays a key role in providing secure messaging services. Confidentiality controls protect our customers’ message data from unauthorised disclosure.

Extensive integrity controls are built into our applications in order to protect against unauthorised changes to messages, and to detect corruption of messages.

The availability and resilience of the messaging service infrastructure is of prime importance to SWIFT users. Stringent availability controls and procedures are in place to ensure that service availability commitments are met or exceeded;

Finally, rigorous change management processes help ensure that, in a continually changing environment, our security principles are not undermined.

Customer support

All services provided by SWIFT are monitored and supported on a 24*7 basis by teams of technical specialists located within geographically diverse control centres. Using customised service management platforms, our support professionals are able to react instantly to any availability or security issues, and to take the necessary actions to protect the services on which our customers rely.

A comparable ‘follow the sun’ approach is used by SWIFT’s Customer Service divisions to provide our customers with assistance on any issues or questions concerning the use of SWIFT’s products and services at any time of day or night. Our video channel providing a library of ‘how to’ tips is backed by an extensive online knowledge base, and support analysts are available to answer questions directly at all times.

Challenges for SWIFT

The majority of SWIFT clients have huge transactional volumes for which manual entry of instructions is not practical. The need for automation for SWIFT message creation, processing, and transmission is growing. However, this comes at a cost and operational overhead. Although SWIFT has been successful in providing software for the same, that too comes at a cost. SWIFT may need to tap into these problem areas for the majority of its client base. Automated solutions within this space may bring in new stream of income for SWIFT and keep clients engaged in the long run.

Conclusion: 

SWIFT codes, also known as Bank Identifier Codes, or BICs, can be looked up on websites such as Swift.com, Iban.com,and Xe.com, or in directories maintained for each country that uses them. They uniquely identify banks and facilitate electronic communications and transactions between them. international transactions are now secure and very faster by using SWIFT.