What is the SWIFT Banking System?Izzy Murphyon February 24, 2022 at 12:30 TechRound

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The SWIFT banking system is one which is recognised globally and used by many financial institutions. SWIFT stands for Society for Worldwide Interbank Financial Telecommunications, and essentially makes it easy to transfer money worldwide.

The Society for Worldwide Interbank Financial Telecommunications is a messaging network, meaning that information and sensitive details can be transferred rapidly and securely, pre-dating modern day VPNs. During the year of 2020, the Society for Worldwide Interbank Financial Telecommunications had over 11,000 financial institutions as members, and over 35 million transactions took place on a daily basis.

SWIFT also sells software to banks and other financial institutions, and is a Belgian cooperative society owned by its members.

How Do SWIFT Transactions Take Place?

During a SWIFT transaction, information is transmitted securely through a system of codes which have been standardised. Each financial organisation which uses SWIFT to facilitate transactions is assigned a unique code which consists of either 8 or 11 digits. This code is referred to as the bank identifier code, commonly known as the BIC, SWIFT ID, SWIFT code or ISO 9362 code.

How is the SWIFT Code Assigned?

The SWIFT code is assigned based on the characters within the name of the financial institution, the country which it is in, the city it is based in within the country and then some optional characters.

The first four characters of the SWIFT code for any financial institution are the institute’s code. Following the first four, the next two characters are the country code where the institution is located, and the next two are the location or the city code. The last three characters are usually optional, however they are typically used by larger organisations to assign SWIFT codes to individual branches.

When Was SWIFT Founded?

SWIFT was founded in 1973, and supported 239 financial institutions across a total of 15 countries. In the next 4 years, the Society for Worldwide Interbank Financial Telecommunications expanded to support 518 different institutions across 22 countries, meaning it was becoming better recognised. SWIFT was founded to provide a shared network in an institutional form, making it easier to transfer funds on a global basis quickly and easily.

Who Uses SWIFT?

Originally, SWIFT was used only by correspondents within separate organisations. Despite this, SWIFT’s design actually allowed for real scalability, meaning that it expanded to be used by the masses. It now provides its services successfully to a range of organisations.

These organisations include banks, security dealers, asset management companies, brokerage institutes, trading houses, depositories, corporate business houses, treasury market participants, foreign exchange and money brokers and service providers.

Which Services Are Offered by SWIFT?

The services offered by SWIFT include business intelligence, applications, compliance services, messaging and connectivity and software solutions. The system essentially offers services which are designed to assist businesses and individuals alike to complete transactions securely and efficiently.

Business intelligence: WIFT offers reporting utilities and dashboards meaning clients can monitor messages in real-time. Reports can be filtered based on message types, parameters, country and region.

Applications: SWIFT connections provide access to a wide variety of applications, including construction matching, banking market infrastructure and securities market infrastructure. This means that SWIFT enables businesses to successfully process and clear settlement instructions for a variety of transactions including derivatives, forex and securities.

Compliance services: SWIFT offers reporting and utilities which are aimed at services around financial crime compliance.

Messaging, connectivity and software solutions: at it’s core, SWIFT is in place to provide secure, scalable and trusty networks for messages to be transferred smoothly. This is facilitated through software, network connections and messaging hubs through which the Society for Worldwide Interbank Financial Telecommunications offers products and services ensuring end to end transactions.

What Are SWIFT’s Challenges?

Challenges involved with the Society for Worldwide Interbank Financial Telecommunications include facing the issues which come with large scale automation. Most of SWIFT’s clients have exceptionally large volumes of transactions, meaning manual entry is not typically ideal.

Consequently, SWIFT should begin to provide automated message creation, transmission and processing systems. The downside of this is that there will be an increase in the operational overhead requirements for the Society for Worldwide Interbank Financial Telecommunications, which will be costly.

In spite of the cost of running an automated aspect of the solution, there could be an increase in customer engagement meaning it would be beneficial for SWIFT in the long term.

How Does SWIFT Make Profit?

The Society for Worldwide Interbank Financial Telecommunications makes money through the joining fees of all members. As SWIFT is owned by the members themselves, they are required to pay a joining fee when they become a member of SWIFT.

In addition to this one-off joining fee, members of SWIFT will also be required to pay annual support charges. Annual support charges are based on the individual classes of the members, meaning that different members will pay different annual rates to remain part of the organisation.

Furthermore, users will be charged an additional fee based on the message they send. Prices vary based on the message type as well as the message length. Charges differ based on the usage volume of the individual financial organisation using SWIFT, meaning that there are different charge tiers.

SWIFT also has additional services in place such as business intelligence, reference data and compliance services alongside alternative streams which generate income.

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