SWIFT | B2B Finance Glossary

Sep 7, 2023 by Zazil Martinez

What is SWIFT?


SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. It is a Belgian member-owned cooperative society that is designed to provide safe and secure financial transactions for every one of its members. After it was created, SWIFT became an essential part of the global financial infrastructure. Today, SWIFT is the largest and most efficient banking system that allows users to make international payments and settlements. In 2021, over 11,000 global SWIFT member institutions sent an average of 42 million messages daily through the network in 2021. This was an increase of 11.4% over 2020.

It is important to note that SWIFT is solely a messaging system – it does not manage client accounts or hold any funds or securities.

 

How Does SWIFT Work?


SWIFT allows individuals and businesses to take electronic or card payments from vendors and customers with different banks than they do. SWIFT operates by assigning every institution a SWIFT member a unique ID code called a bank identifier code (BIC) number. This code has either 8 or 11 characters and identifies the bank name, country, city, and branch of the institution it’s associated with. The BIC is also known as the SWIFT code, ID, or ISO 9362 code.

If a customer who lives in the US needs to send a payment to someone who lives in the UK, that customer can go to her bank in the US and provide the payee’s account number and SWIFT code for the corresponding bank in the UK. When the bank in the UK receives the SWIFT message about the incoming payment, it will clear and credit the money to the UK citizen’s bank account.

 

Who Uses SWIFT?


SWIFT has established itself as the industry standard for syntax in financial messaging. Today, many financial systems can read and process messages formatted to SWIFT standards. SWIFT is a highly scalable messaging system that only manages communications regarding treasury and correspondent transactions. Today, SWIFT offers services to the following:

  • Exchanges
  • Foreign exchange (forex) and money brokers
  • Corporate business houses
  • Asset management companies
  • Depositories
  • Treasury market participants and service providers
  • Individuals or businesses making international wires or money transfers
  • Securities dealers
  • Banks
  • Brokerage institutes and trading houses
  • Clearinghouses

 

How Does SWIFT Work With Economic Sanctions?


Central banks manage SWIFT from the Group of Ten (G10) countries. This group was formed when the ten wealthiest International Monetary Fund (IMF) member countries agreed to participate in the General Agreements to Borrow. Today, the G10 consists of eleven industrialized nations that meet at least once a year to discuss international financial matters. However, it’s essential to keep in mind that even though the G10 manages SWIFT, it is a neutral organization that is designed to benefit every single one of its members.

Today, SWIFT membership can be used as an economic sanction against certain members. In 2012, the EU passed an embargo against Iran that disconnected SWIFT from sanctioned Iranian banks; the same thing occurred in 2022 when the UK, the US, the EU, and Canada imposed sanctions against Russia.

 

What Are the Different Services That SWIFT Provides?


SWIFT provides many services that help individuals and enterprises complete efficient and accurate payments. Here are the benefits that SWIFT offers specifically:

  • Compliance Services. SWIFT offers tools that help support compliance services that uphold Know Your Customer (KYC), sanctions, and anti-money laundering (AML) standards.
  • Business Intelligence. SWIFT offers reporting utilities and dashboards that give clients a real-time view of monitoring the messages, activity, trade flow, and reporting. This information can be filtered according to region, country, message types, and specifications.
  • Applications. SWIFT connections allow access to many applications, including banking market infrastructure for processing payment instructions between banks, real-time instruction matching for treasury and forex transactions, and securities market infrastructure for processing clearing and settlement instructions for deposits, payments, and forex and derivatives transactions.
  • Messaging, connectivity, and software solutions. SWIFT was designed to enable a safe, trustworthy, and scalable network for the seamless movement of messages; as a result, this technology uses messaging hubs, network connections, and software to create many different products and services that make it possible to send and receive transactional messages.

 

Why Do Banks Need SWIFT?


Not all banks use SWIFT, and while it is possible for banks to send money without SWIFT, that process requires banks to use legacy systems to process the payments. This ultimately results in international payments that are slower, more expensive, and less secure. Due to this, SWIFT has remained dominant when processing global transactions. Now, as SWIFT continues to offer reporting utilities and other data services for businesses, it will become even more vital to banking and business as time passes.