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 created 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.

The role of SWIFT

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.

What SWIFT code signifies

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 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 transfer destination. Thus, it ensures safe, high-speed overseas funds exchange.

SWIFT history

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.

SWIFT nowadays connects over 11,000 banks, 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 SWIFT is 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.

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 obliges 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.

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 and domestic transactions.

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

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.