SWIFT means Society for Worldwide Interbank Financial Telecommunication. It’s a global network used by 10,000 financial institutions. SWIFT helps them exchange information about money transfers.
SWIFT was founded in Brussels in 1973. Its target was to ease financial transactions across banks. Cross-border payments were a major problem back then. Banks didn’t have a uniform communication standard.
To address this issue, 239 banks from 15 states decided to form SWIFT. It replaced the outdated and faulty TELEX technology. Originally, the new network consisted of a messaging platform and a computer system that validated and sent messages. It also included a set of standards. These standards helped reconcile various communication rules and avoid misunderstandings.
The new system proved to be more efficient and secure and banks quickly adopted it. Here are some facts and numbers:
As with any financial solution, SWIFT has its advantages and disadvantages.
With so many cons you can’t help but think that SWIFT is outdated. But it is an essential part of banking. But why do we really need banks at all?
If you are interested in this question, check out our explanation about why banks exist.
Now, let’s explore how payments function in this network.
SWIFT messages travel as a person would travel between countries. Sometimes it’s impossible to go directly from one location to another, and one takes several connecting flights. These flights may be operated by different air carriers. The travel company combines them to build up your route from point A to point B.
With SWIFT, your money travels from one country to another, using ‘connecting’ banks. It’s important to understand, that the network itself does not operate any money. Rather, it sends payment orders from one bank to another. To eliminate errors, special unified codes are used. It helps recognize the recipient bank and speed up payment processing.
SWIFT FIN is a core concept of the network. It is a special type of message to transfer financial info between banks. FIN is a language used for programming these messages.
All the messages in the network include 5 blocks: 3 headers, message content and a trailer. To identify the message content, there is a 3-digit code that defines its category, group and type.
MT = (Message Type)
3 = treasury markets (the category of financial tools)
0 = financial institution transfer
4 = notification (the type of message)
Swift website welcome page, explaining the registration procedure step by step.
BIC is an organization identifier that SWIFT gives to all banks in the network.
BIC stands for Bank Identifier Code. It’s also called the SWIFT code.
BIC consists of 8 to 11 characters. The first 4 symbols are the coded name of the bank, then comes the country code (RU, IT, FR, etc.) followed by the code of the city. The last 3 symbols refer to a regional branch of the bank.
CCBPFRPPMTG = Banque Populaire Rives De Paris, France
This payment network remains one of the most important financial organizations that has transformed the banking sector for the better. But it has a lot of problems. Until recently it offered the highest level of transparency. It also made money transfers faster and easier.
But Blockchain brings a lot more advantages and fixes many problems of SWIFT. For example, it makes overseas payments much faster. It is possible that SWIFT will lose its leading position to cryptocurrency.