The SWIFT (Society for Worldwide Interbank Financial Telecommunications) is a global messaging network that financial institutions or banks use to securely communicate within themselves through a standardized system of codes. SWIFT assigns each financial institution a unique code that has either 8 characters or 11 characters. The code is also called the bank identifier code (BIC), SWIFT ID, SWIFT code or ISO 9362 code.
Example: Deutsche bank, Frankfurt, Germany. It has the 8-character SWIFT code DEUTDEFF.
The key users of SWIFT system now are – Banks, Brokerage Institutes and Trading Houses, Asset Management Companies, Securities Dealers, Treasury Market Participants and Service Providers, Depositories, Clearing Houses, Corporate Business Houses and stock Exchanges.
How it works?
To transfer fund to any account across the world, the customer has to provide the account number and the unique SWIFT code. Based on the details, payment transfer is done over the secure SWIFT network and money is credited into the recipient’s account. SWIFT is just a messaging system and it neither manages client accounts nor it holds any type of funds or securities. Once the other bank receives the SWIFT message about the incoming payment, it credits the money to the recipient’s account.
Post the introduction of the SWIFT system in 1974, the network membership had increased to 230 banks within a period of three years. Although there are other messaging services like Fedwire, Ripple and CHIPS, SWIFT continues to retain its dominant position in the market. SWIFT is now being used for security and treasury transactions as well along with payment transactions for which it was invented.
SWIFT is a cooperative society maintained by its members which are categorized into classes based on the share ownership. All members pay a one-time joining fee plus annual charges which depends on the member types. SWIFT also charges users for each message, based on the message type and size. These charges also vary depending on the bank’s usage volumes.
The majority of SWIFT clients have enormous transaction volumes for which manual entry of payment and treasury instructions is not practical. There is a need for automation of SWIFT message creation, processing and transmission which incurs cost and operational overhead.