Need to transfer money abroad? These days, it’s easy to go into a bank and transfer money anywhere around the globe, but how does this happen? Behind most secure and international money transfers is the SWIFT system, an extensive messaging network used by banks and other financial institutions to quickly send and receive information, Accurate and secure, like money transfer instructions. Every day, nearly 10,000 SWIFT member organizations send approximately 24 million messages online. In this article, we will explore what SWIFT does, how it works and how to make money.
What is SWIFT?
Society for Worldwide Interbank Financial Telecommunication Worldwide Interbank Financial Telecommunications – SWIFT) is a member-owned cooperative that provides safe and secure financial transactions to its members. Founded in 1973, SWIFT uses a proprietary, standardized communication platform to facilitate the transmission of information about financial transactions. Financial institutions securely exchange this information, including payment instructions, between themselves.
SWIFT assigns each financial institution a unique eight- or 11-character code. Interchangeable codes are known as bank identifiers (BICs), SWIFT codes, SWIFT IDs or ISO 9362 codes. To understand how codes are assigned, check out the Italian bank UniCredit Banca, based in Italy. Milan. It has an 8-character SWCR code UNCRITMM.
First four characters: setup code (UNCR for UniCredit Banca)
Next two characters: country code (IT for Italy country)
Next two characters: location code/city code (MM for Milan)
Last three characters: optional, but organizations use it to assign codes to individual branches. (The UniCredit Banca branch in Venice may use the code UNCRITMMZZZ.)
Suppose a customer of a Bank of America branch in New York wants to send money to his friend, who works as a banker at the UniCredit Banca branch in Venice. New York customers can walk into their Bank of America branch with a friend’s account number and UnicaCredit Banca’s unique SWift number, for the branch in Venice. Bank of America will send a SWift message transferring the payment to a UniCredit Banca branch over the secure SWIFT network. Once Unicredit Banca receives a SWIFT notification of an incoming payment, it will delete and credit the Italian friend’s account.
Remember that SWIFT is just a messaging system – SWIFT does not hold any funds or securities, nor does it manage customer accounts.
The World Before SWIFT
Prior to SWIFT, Telex was the only means of message confirmation available for international money transfers. Telex is plagued by low speeds, security concerns, and free messaging formats – in other words, Telex doesn’t have a unified code system like SWIFT for naming banks and describing transactions. The telex sender must describe every transaction in sentences which are then interpreted and executed by the receiver. This leads to many human errors.
To overcome these problems, the SWIFT system was established in 1974. Seven major international banks have formed a cooperative to operate a global network that will securely transmit financial messages and timely.
Why SWIFT have advantages?
Within three years of its introduction, SWIFT membership had grown to 230 banks across five countries. Despite other messaging services such as Fedwire, Ripple, and CHIPS, SWIFT continues to hold its dominant position in the market. Its success is attributed to the fact that it is constantly adding new message codes to transmit various financial transactions.
While SWIFT started out primarily for simple payment instructions, it now sends messages for a variety of actions, including secure transactions and treasury transactions. Nearly 50% of SWIFT traffic is still for payment-based messages, but 43% is now related to secure transactions and the remaining traffic goes to treasury transactions.
Who uses SWIFT ?
Originally, the founders of SWIFT designed the network to facilitate communication about Treasurys and their respective transactions. The robustness of the message format design allows for enormous scalability through which SWift is gradually extended to provide the following services:
• Brokers and traders
• Securities agent
• Asset management company
• Treasury market participants and service providers
• Forex and currency brokers
Services provided by SWIFT
Application (Applications)- SWIFT connects and allows access to a variety of applications, including real-time order matching for treasury and foreign exchange, interbank market infrastructure to process payment instructions between banks banking and stock market infrastructure to process clearing and settlement for securities, foreign exchange and derivatives trading.
Business Intelligence – SWIFT recently introduced a dashboard and reporting widget that allows customers to get dynamic, real-time view of monitoring messages, activities, transaction flows and reports. The reports allow filtering based on region, country, notification type and related parameters.
Compliance Services – Aiming to provide services around financial crime compliance, SWIFT offers reporting and facilities such as Know Your Customer (KYC), Sanctions and Anti-Finance. money laundering (AML).
Messaging, connectivity and software solutions – The core of the SWIFT business lies in providing a secure, reliable, and scalable network for smooth message movement. Through various messaging centers, software, and networking, SWIFT offers a variety of products and services that enable its end customers to send and receive transactional messages.
How does SWIFT make money?
SWIFT is a cooperative owned by its members. Members are classified into classes based on share ownership. All members pay a one-time joining fee plus an annual support fee that varies by membership class. SWIFT also charges users per message based on message type and length. These fees also vary depending on the bank’s usage volume – different fees exist for banks that generate different message volumes.
In addition, SWIFT has launched additional services. They are backed by a long history of data maintained by SWIFT. These include business intelligence, reference data and compliance services and provide other sources of income for SWIFT.
Challenges for SWIFT
The majority of SWIFT clients have such a high volume of transactions that it is impractical to enter instructions manually. The need for automation to create, process, and transmit SWift messages is growing. However, this comes with costs and operational costs. While SWIFT has been successful in providing software for the same, that also comes at a cost. SWIFT may need to tap into these problem areas for the majority of its customer base. Automated solutions in this space can provide a new source of income for SWIFT and keep customers engaged for the long term.
SWIFT retains its dominant position in handling global transaction messages. More recently, it has entered other areas, such as providing utilities and reporting data for business intelligence, which shows a willingness to sustain innovation. In the short to medium term, SWIFT seems poised to continue to dominate the market. Ripple is said to be threatening SWIFT with its blockchain technology with its cheap transaction fees and breakneck speed, but for Ripple to change the habits of banks is not easy. Recently, JPMorgan, the largest bank in the United States, has just released the JPM Coin cryptocurrency, which is also said to hit the business area of SWIFT.
Follow the Twitter page | Subscribe to Telegram channel | Follow the Facebook page