SWIFT

SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a global messaging system used by thousands of financial institutions worldwide to securely communicate transaction orders.

Before the advent of SWIFT in 1973, international transactions relied on TELEX, a slower system that described transactions using sentences rather than standardized codes. SWIFT introduced a system of codes that significantly improved the efficiency of financial messaging.

1. SWIFT Codes: Every financial institution in the SWIFT network is assigned a unique SWIFT code (also known as BIC or Bank Identifier Code). This code consists of either 8 or 11 characters and includes information such as the institution code, country code, and location code.

2. Transaction Handling: SWIFT does not transfer funds directly but facilitates communication between banks. It standardizes the process for international transfers using SWIFT codes and enables the use of IBAN (International Bank Account Number) for identifying specific accounts.

1. Direct Relationships: When two banks have a direct relationship (commercial accounts with each other), transactions are straightforward. The sender's bank sends a SWIFT message to the recipient's bank, which processes the transfer quickly.

2. Intermediary Banks: If the sender and recipient banks do not have a direct relationship, an intermediary bank facilitates the transfer. This adds time (usually 3-5 business days) and fees to the transaction.

3. Currency Exchange: For transactions involving different currencies, banks handle the exchange, often at less favorable rates, which increases costs.

SWIFT operates as a cooperative governed by a 25-person board of directors and overseen by G-10 central banks and the European Central Bank. It adheres to Belgian law and complies with EU regulations, including sanctions.

1. Efficiency: SWIFT ensures standardized, secure, and efficient communication of financial transactions globally.

2. Costs: The use of intermediary banks and currency exchange can result in additional fees for user. In conclusion, SWIFT plays a crucial role in facilitating global financial transactions, providing a secure messaging system that enables banks to communicate transaction orders efficiently across borders.