SWIFT Payments: The Role Of Modern Technologies In Financial Transactions
February 20, 2024
The structure was founded in 1973, its founders were more than 200 European and American banks. The head office is in Brussels. Currently, more than 10,000 large banks and non-banking organizations representing almost all countries worldwide are connected to the system. The number of transactions per day amounts to millions.
SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications System. This system powers most of the international and security transfers of the world. Basically, SWIFT is a wide network for messaging catered to financial institutions. The goal is to ensure quick, accurate, and secure sending and receiving of information and instructions on money transfers.
SWIFT Transactions: A General Overview
Various banks and financial institutions created a cooperative called SWIFT. The goal of the body is to ensure safe and secure transactions for all the members of the cooperative. Hence, the body works as a payment network. This network enables businesses and individuals to deal with card payments even if the other party has a different bank account.
The aim of creating SWIFT was to create the largest and the most streamlined process to ensure smooth international payments. Each member that joins SWIFT gets a unique ID code. This code contains the name of the bank, location, branch, city, and country.
SWIFT Transaction: A Sneak Peak
SWIFT allows financial institutions to transmit information and financial instructions securely through a system of standard code. You need to understand that SWIFT is not a financial institution in itself; it is just a body that is crucial for global financial transactions. Apart from that, SWIFT does not hold assets or transfer them. It is just responsible for facilitating secure and efficient financial communication among SWIFT members.
According to statistics, by the end of 2022, the number of SWIFT payments daily reached 50 million. However, it is important to know that SWIFT does not hold any assets like funds or securities. It also does not manage client accounts. Basically, it is a messaging system for financial transactions.
The unique code that SWIFT assigns to each of its member financial institutions is either eight or eleven characters. This code is known as the bank identifier code (BIC).
How Does It Work?
From a technical point of view, SWIFT payments are an international corporate network to which banks and other users are connected. Regional processors and operations centers manage it.
Interaction between participants is carried out based on financial messages and between the system and participants – based on system messages. The message structure comprises a header, text, and a so-called trailer (special code). Messages from the computers of SWIFT members arrive at the regional processor, are accumulated there, and redirected to the operations center for processing (correctness analysis, conversion, identification, and encryption), and based on its results, they are either transmitted to recipients or returned to senders.
What Is A SWIFT Transfer?
Transfers can be made either from a bank account or in cash. To do this, an order is generated that contains the following information:
- SWIFT code and name of the receiving bank, as well as details of its branch where the money should be received;
- the name of the ultimate receiver (complete name of the individual or name of the organization) and the number of his bank account.
The bank’s SWIFT code is a unique identifier for system members. It consists of 8-11 characters and includes codes: organization (4 characters), country (2 characters), region (2 characters), and branch (3 characters, optional).
Advantages And Disadvantages Of The SWIFT Transfer System
This is not the only money transfer system; its competitors also operate in this market – Unistream, Western Union, and others. However, compared to them, SWIFT has many advantages, among which the following can be noted:
- Widespread use of the system;
- there are no limits on the volume of transferred funds (limitations are set by specific countries);
- sending and receiving money in any currency (in theory, in practice, restrictions may be set);
- relatively low commissions when transferring large amounts;
- guaranteed delivery, compensation for losses incurred by the client due to the fault of the system.
Among the disadvantages, it is worth noting:
- Sending a transfer requires a lot of data;
- monitoring of payments by American authorities.
SWIFT Analogues
SEPA (Single Eurocurrency Payments Area), which was created to optimize money transfers between EU countries, is an alternative to SWIFT. Most SEPA transactions are completed in less than 24 hours. To use its services, you do not need to have accounts in different banks.
You can conduct a transaction from your smartphone. A high level of protection is achieved through common processing. Users have access to credit transfers and direct debits. Transfers are made only in euros.
How Does SWIFT Work?
Let’s say you want to transfer $1000 abroad through a bank in your country – R-bank to your friend’s bank account in a Venezuelan bank – V-bank.
Please note that you do not need to have an account with R-bank for this. You can deposit money at the bank’s cash desk and order a SWIFT transfer without opening an account.
Messages about transfers in different world currencies can be transmitted through SWIFT. The main thing is that the banks involved in the transfer have the practical ability to work with these currencies. In our example, the transfer is made in dollars.
We assume that there is an established relationship between the R-bank and the V-bank:
- They have been communicating with each other via messenger for a long time and can transfer money to each other directly without intermediaries;
- R-bank has a correspondent account with V-bank, and V-bank has a correspondent account with R-bank.
How To Send Money Using SWIFT?
There can be a variety of reasons why you need to send money using SWIFT. The SWIFT system works just like a wire transfer. Here are some of the steps you need to follow to send SWIFT payments:
1. You will need to gather the details of your recipient, like address, bank name, legal name, account number, routing code, etc. Then, you will have to collect the SWIFT code of the bank account, as well as your government ID. Apart from that, you will also need to show the purpose of transferring funds.
2. Log in to your bank’s payment system for international wire transfers.
3. Check all the fees and limits associated with the transfer of cash.
4. You will have to mention the country you are sending to, as well as other essential information.
5. Finally, you can send the money from your bank using SWIFT. Also, do not forget to keep a record of the event.
Why Is The Speed Of Payments Important?
If we omit additional commissions when using intermediaries, the question remains with the speed of transaction processing. This is important for individuals, but especially for businesses.
For example, if a company purchases a foreign product, it usually has an agreement with the supplier for partial payment. And while the goods are on the way, the company can use free funds for other needs or invest.
In conditions where there are no guarantees of quick translation, problematic situations arise. Thus, suppliers can request 100% advance payment for goods.
Conclusion
The importance of SWIFT is because this system is used by a huge number of banks around the world and in many world currencies. This allows you to quickly and without restrictions do business with any country. No other system has such several participants.
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