The SWIFT system, which stands for ‘Society for Worldwide Interbank Financial Telecommunication’, handles most international financial transfers. Financial organisations utilise SWIFT to swiftly, precisely, and securely send and receive information, like instructions for money transfers. This article examines SWIFT’s functions, operations, and revenue streams.
Understanding SWIFT
Using a defined code system, financial institutions use SWIFT to transfer data and instructions safely. Despite being essential to the world’s economic infrastructure, SWIFT is not a financial institution. Instead of holding or moving assets, SWIFT enables member institutions to communicate securely and effectively.
In November 2022, the network’s more than 11,000 international SWIFT member institutions processed an average of 44.8 million daily messages.
A ‘Bank Identifier Code’, or BIC, is a special eight or 11-character designation SWIFT assigns to each financial institution. Other names for the BIC include the SWIFT code, SWIFT ID, and ISO 9362 code.
Let’s examine the Italian bank UniCredit Bancato better comprehend the code assignment process. The eight-letter SWIFT code for it is UNCRITMM.
The institution code for UniCredit Banca is UNCR, indicating its affiliation with UniCredit. The country code IT signifies that the bank is located in Italy. The city code MM specifically represents Milan, one of the major cities in Italy. Additionally, organisations may assign unique codes to individual branches, denoted by the last three characters.
A client goes to a nearby Bank of America branch to wire money to his friend in Venice, Italy. He delivers Venice’s UniCredit Banca branch details and his Italian friend’s account number. The special SWIFT code is part of this information.
Over the safe SWIFT network, Bank of America transmits a payment transfer message to the UniCredit Banca branch. After receiving the SWIFT notification of the incoming payment, Unicredit Banca will clear and credit the funds to the Italian friend’s account.
Despite SWIFT’s effectiveness, remember that it is merely a communications system. Using SWIFT to send money to family and friends who live overseas, book a holiday rental, pay for school, or purchase other services or goods would be best. Sending money using SWIFT follows the same steps as sending a wire transfer.
The SWIFT procedure
To initiate an international wire transfer, you will need the recipient’s bank name, address, and country, the routing code of the recipient’s bank, the recipient’s full legal name, current address, and account number, the SWIFT Code of the recipient’s bank account, your government-issued ID, the purpose of sending funds and any other documents/information required by your bank.
Once you have gathered all the necessary information, you can proceed to your bank or log into your bank’s online system. Request an international wire transfer and provide the required details, including the recipient’s bank information, account details, and SWIFT Code. You may also be asked to specify the country to which you send the funds and the currency you wish to send in.
Understanding all the fees and limits associated with sending cash abroad is essential. Your bank should provide this information, including applicable transfer fees and exchange rate charges. Make sure you are aware of these costs before proceeding with the transfer.
Once you have confirmed the transaction, your bank will use the SWIFT network to send the money to the recipient’s bank. Keeping a transaction record, such as a receipt or confirmation, is advisable for your reference.
Remember, the specific process and requirements may vary depending on your bank and the country involved in the transfer. It is always a good idea to consult with your bank or refer to their guidelines for accurate instructions on initiating an international wire transfer.
If you are receiving money, you must obtain the sender’s SWIFT account number from their bank. These SWIFT numbers may change depending on whether you’re receiving money in U.S. dollars or another currency.
Knowing SWIFT’s history
The only method of message confirmation for international cash transfers before SWIFT was Telex. Telex had difficulties because of its slow speed, security issues, and free message format.
In other words, Telex needed a standard set of codes for identifying banks and describing transactions like SWIFT does. Telex senders were required to describe each transaction in terms that the receiver would understand and carry out. This caused a lot of human mistakes and slowed down the processing.
Support for a shared network “began to gain institutional shape” in the late 1960s, when the Société Financière Européenne (SFE, a group of six significant banks with headquarters in Luxembourg and Paris) started a “message-switching project,” claims the London School of Economics.
To resolve these issues, 239 banks from 15 countries developed the SWIFT system in 1973. Worldwide Interbank Financial Telecommunication, with its headquarters in Belgium, would send and receive financial messages promptly and safely. In 1977, SWIFT’s communications services went live.
The SWIFT network was initially created to facilitate communication, specifically for Treasury and correspondent transactions. However, due to the robustness and scalability of its message format design, SWIFT gradually expanded its services to include a wide range of participants in the financial industry.
Today, SWIFT serves various financial entities. Securities dealers, asset management companies, clearinghouses, and depositories utilise it. Exchanges and corporate business houses rely on SWIFT for their financial communication needs.
Furthermore, SWIFT has become an essential platform for treasury market participants and service providers. Individuals and businesses needing to make international or money transfer transfers often utilise SWIFT for secure and efficient transactions. Foreign exchange and money brokers also rely on SWIFT for their operations.
The evolution of SWIFT from its original focus on treasury and correspondent transactions to its current wide-ranging services demonstrates the network’s adaptability and the recognition of its secure and reliable communication infrastructure by participants in the global financial industry.
SWIFT, which represents various businesses globally, is a member-owned cooperative whose shareholders are specific member financial institutions. The central banks of the ‘Group of Ten’ nations regulate SWIFT. Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States are among them. Along with other participants, including the U.S. Federal Reserve, the European nation of Belgium serves as the primary overseer.
All nations rely on SWIFT to carry out quick, seamless, and secure communication; therefore, they are incentivised to maintain good standing with the organisation. While central banks from the G10 nations manage SWIFT, it is a neutral institution that serves all its members’ interests.
SWIFT solutions
The SWIFT system provides a wide range of services that assist businesses and consumers in carrying out smooth and precise business transactions. The list below includes a few of the services offered.
SWIFT connections provide access to several applications, such as real-time instruction matching for treasury and foreign exchange transactions, banking market infrastructure for processing payment instructions between banks, and securities market infrastructure for processing clearing and settlement instructions for payments, securities, foreign exchange, and derivatives transactions.
The dashboards and reporting tools that SWIFT has released allow its clients to observe the messages, activity, trade flow, and reporting in a dynamic, real-time manner. The reports allow for filtering by region, nation, message type, and other relevant criteria.
SWIFT also provides reporting and tools for Know Your Customer (KYC), sanctions, and anti-money laundering (AML), focusing on services related to financial crime compliance.
Furthermore, the foundation of SWIFT’s operations is providing a scalable, secure, and dependable network for efficiently transferring messages. SWIFT offers various products and services that let its end clients send and receive transactional messages via its numerous messaging hubs, software, and network connections.
SWIFT’s revenue generation method
Depending on share ownership, many kinds of SWIFT Members exist. All members must pay a one-time joining fee and annual support fees, which vary by member class.
Additionally, SWIFT charges a fee to users based on the message’s length and kind. Depending on the bank’s usage volume, these fees change. There are various price tiers available for banks producing different communication volumes.
Due to its extensive data history, SWIFT has also introduced the additional services mentioned above. These services, which give SWIFT other revenue sources, include business intelligence, reference data, and compliance services.
Issues with SWIFT
Most SWIFT clients handle large volumes of transactions, for which manual instruction insertion could be more practical. SWIFT message generation, processing, and transmission automation are becoming increasingly necessary. However, this comes with a price and higher operational costs.
Even though SWIFT successfully offers software for automation, it also has a price. For most of its clientele, SWIFT may have to go into these issue areas. Automated solutions in this area may open new revenue sources for SWIFT and maintain client interest over time.
The potential use of SWIFT membership as a possible financial censure against members has repeatedly come up in recent years. For instance, in 2012, the European Union enacted sanctions on Iran that required SWIFT to cut off banking services to sanctioned Iranian institutions.
EU Council Regulation (EU) 833/2014 forbade SWIFT and other financial messaging companies from offering services to certain Russian firms and subsidiaries beginning in 2022. SWIFT, which is based in Belgium, is subject to EU laws. The EU Council Regulation (EU) 765/2006 forbade SWIFT from conducting business with specified Belarusian firms and subsidiaries. The upshot was the disconnection of both Russian and Belarusian firms from SWIFT.
The global financial system cannot function without SWIFT. In November 2022, the network’s more than 11,000 international SWIFT member institutions processed an average of 44.8 million daily messages.
Furthermore, the majority of credit unions and many smaller American banks do not participate in the SWIFT network, which is the monopoly of colossal global financial institutions.
However, banks can send money without SWIFT, but doing so frequently involves manual settlement and relies on older, slower technologies to handle the payments. Due to this, foreign fees are more challenging, time-consuming, expensive, and uncertain.
In the worldwide processing of transactional messages, SWIFT has maintained its leadership position. Its recent expansion into new markets, including reporting utilities and data for business intelligence, demonstrates its desire to keep up its inventive streak. SWIFT appears certain to maintain its position as the market leader in the short- to mid-term.