What is SWIFT and what is its role in payments?

You’re on one side of the world and the person to whom you want to send money, or the company that owes you, is on the other. 

No matter where on the globe amounts start their journey and where they’re expected to end it, they sure will make it. 

SWIFT is what facilitates the process.

What is SWIFT

SWIFT is an acronym for Society for Worldwide Interbank Financial Telecommunication. It is a global member-owned cooperative that creates and maintains a secure messaging network.

Financial organisations use the network to transmit payment information and instructions worldwide, through a standardised system of protocols. 
Each financial organisation is assigned a unique SWIFT code, which may be also encountered under several other names – BIC (Bank Identifier Code), SWIFT ID, SWIFT number, or ISO 9362 code.

SWIFT elements and what they signify

A SWIFT code comprises both letters and numbers and may be either 8 or 11 symbols in length. A generic outlook would be WWWWXXYYZZZ. 

For a better understanding of what the character sets at unique positions signify, let’s explore a real-life example like MPOSGB2L:

• The first four characters are the code of the financial organisation – MPOS for myPOS.
• The next two characters are the country code – GB for Great Britain.
• Characters 7 and 8 are the head office location or city – 2L for London.
• The last three characters are optional – organisations may use these to identify an individual branch

SWIFT codes provide easy-to-validate details about the financial institutions taking part in the transaction. The system executes code-character checking against a database and verifies the international money transfer destination. Thus, it ensures safe, high-speed overseas funds exchange.

Examples of SWIFT codes

As a unique identifier assigned to SWIFT banks and financial institutions, SWIFT codes guarantee precise and secure financial messaging services.

But what are some SWIFT code examples?

For instance, the SWIFT code for JPMorgan Chase Bank in New York is CHASUS33. On the other hand, HSBC Bank in London uses the SWIFT code MIDLGB22.

As a result of SWIFT codes, errors can be minimised while the global financial infrastructure can perform with maximum efficiency. 

What is the role of SWIFT codes

SWIFT is a communication system that connects banks all over the world for fast and secure international financial transactions and payments. In other words, it is a messaging network, part of the global payments system.

It serves for disbursement execution outside a domestic system. SWIFT carries payment instructions, exchanged by the financial institutions that take part in a transaction. Therefore, SWIFT is said to be the fundamental mechanism for financing international trade.

It’s important to note that it is not in SWIFT’s role to accept funds or maintain merchants’ accounts. The cooperative services dispatch transaction information in a safe, fast and accurate manner, making sure money lands exactly in the account for which it is aimed.

A brief history of SWIFT

SWIFT was initiated in 1973 in Belgium, where it is headquartered to date. Initially, it connected nearly 240 banks in 15 different countries. Prior to that, international financial transactions had been sent over Telex – a manual system of writing and reading communication.

Telex was good for its time but was slow. It was free in message formatting, so when detailing the settlement, anyone could transmit any number of words in whatever order they wanted. On the other end, the recipient had to interpret the description and process the transaction, which often resulted in mistakes and delays.

SWIFT came as a modernization. The system introduced formatted codes, thus eliminating contradictions and misinterpretations. These codes are easy to understand and one can easily search for the meaning of any part they cannot recognise at a glance.

SWIFT also set financial transaction standards and launched a shared data processing system and a worldwide communications network. The first message was expedited through the network in 1977.

Nowadays, SWIFT connects over 11,000 banks and other financial institutions, securities organisations, market infrastructures, and corporate customers throughout more than 200 countries. It is indeed the biggest international payment network in the world.

The system carries over 40 million messages and transacts trillions of dollars every single day between governments and financial institutions all over the world.

How does a SWIFT payment work

We already mentioned that a SWIFT payment takes place via the SWIFT messaging system – a formation between thousands of banks and financial institutions around the world. 

Once a SWIFT transfer is initiated, the customer or money sender’s bank transfers a SWIFT message through a secure SWIFT network. This message reaches the recipient’s bank, informing it that the beneficiary’s account must be credited.

In order for the process to be completed, it’s essential that a range of intermediary banks participate, especially in cases where the two main banks (the sender’s and recipient’s) don’t communicate directly. 

SWIFT messages are used by every bank participating in the chain to make sure the payment data is verified and protected. All steps that are necessary to complete a SWIFT payment take place in a secure and timely manner, guaranteeing that the money is sent across borders as efficiently as possible.

How to make a SWIFT transaction

In order to initiate a SWIFT transaction, you’ll need to get in touch with your bank or financial institution and provide all essential details of the transaction. In most cases, the required information will include the name, bank name, and account number of the recipient, the transfer amount, the desired currency, and others. 

You’ll be able to access the forms you’ll need to fill out from your bank in order to start the SWIFT payment process. After completing the forms, the next phase is the actual transfer of funds from your account to your bank’s account. 

During the process, the SWIFT banking system makes sure that the funds are transferred safely and securely, adhering to financial crime compliance standards to prevent risks. 

Once the funds have been sent successfully, you’ll receive a verification of the transaction. In some cases, this process takes a few hours, while in others, a few days. 

What is a SWIFT payment system, and how does it work

A SWIFT system, in essence, is a cornerstone of the global financial infrastructure. It offers a standardised and reliable process that banks and financial institutions can implement in order to communicate with each other and perform international transactions.

The SWIFT network connects more than 10,000 member financial institutions in more than 200 countries around the world, facilitating money transfers, foreign exchange transactions, and additional financial activities. 

Although initially the network was only associated with basic financial messages and payment instructions, today it transmits data for multiple actions, like security, treasury, trade, and system transactions. 

By taking advantage of the safe and efficient SWIFT banking system, international transactions can be associated with security and compliance with key regulations. As a result, the global banking market infrastructure can stand out with its integrity and reliability. 

How is SWIFT supervised

SWIFT is internationally governed and overseen by the central banks of Canada, France, Germany, Italy, Japan, The Netherlands, the United Kingdom, the United States, Switzerland, Sweden, and the European Central Bank, with the National Bank of Belgium being the system’s main supervisor.

In 2012, the SWIFT Oversight Forum was established and the central banks of other major economies joined the overseeing body.

SWIFT or BIC

It’s good to clarify – SWIFT is the messaging system, while the Bank identifier Code – BIC – is the code used in the system. 

Since they are often used as synonyms, whenever you need to send or receive an international transfer, you may be asked to provide either – it will be exactly the same number. You can find it on a paper or digital statement, as well as in your account details. 

Easy-to-use online search tools are available, too.

SWIFT and IBAN

SWIFT and IBAN are different codes. While SWIFT is used to identify a specific bank in an international transaction, IBAN identifies an individual account. It stands for International Bank Account Number and is used in both cross-border payments and domestic transactions.

Like SWIFT, an IBAN is alphanumeric, but it may contain up to 39 characters.

What’s new in SWIFT

SWIFT is the chief method for executing international payments, yet, its users were facing several challenges – lack of capability to observe expedited funds, high correspondent fees, and – as of late – a certain extent of slackness compared to the pace at which things move nowadays.

A new SWIFT GPI system is now introduced to address these issues, where gpi stands for Global Payments Innovation.

It is a framework of rules, incorporating the latest trends and developments. These include transparency of fees, both-side payment tracking, and confirmation of settlement in the recipient’s account. Every gpi-onboarded financial organisation is obliged to follow the rules.

The payment innovation presents improvements in several respects. The movement of funds is more rapid via the SWIFT gpi network. Each disbursement is assigned a UETR – Unique End-to-End Transaction Reference, which enables real-time location tracking. And processing fees are now being fully detailed. 

The latter helps people make informed decisions and compels banks to find shorter routes when intermediaries are involved.

The future of SWIFT: what to expect

In the future, it’s highly likely that changes related to SWIFT will be closely linked to trends and key developments in the global financial realm. Expectations are that SWIFT will continue evolving and adapting to the changing demands and preferences of our highly digital and interconnected world. 

For example, it’s probable that the technology and infrastructure behind SWIFT will be improved, upgrading the messaging system to offer quicker and safer services. These upgrades could be achieved via innovations like blockchain and distributed ledger technology.

In addition, the range of services supported by SWIFT is also likely to widen, expanding its capabilities in areas like real-time payments, trade finance, and securities processing. 

Conclusion

When your business has grown and gone international, you need reliable means to send and receive overseas payments. The SWIFT messaging network connects many financial organisations worldwide and secures the process through its standardised message formatting. 

Thus, no matter where it starts and where it needs to reach, your money travels safely, quickly, and easily.

Disclaimer: Please be aware that the contents of this article and the myPOS Blog, in general, should not be interpreted as legal, monetary, tax, or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.