Society for Worldwide Interbank Financial Telecommunications (SWIFT) - Explained
What is SWIFT?
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Table of ContentsWhat is the Society for Worldwide Interbank Financial Telecommunications (SWIFT)?How Does the Society for Worldwide Interbank Financial Telecommunications Work?
What is the Society for Worldwide Interbank Financial Telecommunications (SWIFT)?
Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a not for profit cooperative society formed by European Bankers to provide a network for a secure and standardized communication about transactions between the member banks. It was formed in 1973 with the support of 239 banks from across 15 countries. Presently, it operates in 210 countries and connects more than 11,000 financial institutions. SWIFT is owned by its member financial institutions and uses a standardized propriety communication platform for sending and receiving information regarding financial transaction among its members, in a secure and reliable environment.
How Does the Society for Worldwide Interbank Financial Telecommunications Work?
The SWIFT has its headquarters in Belgium and is formed under Belgian law. It has offices in the United States, the United Kingdom, Sweden, Switzerland, Spain, Russian Federation, Spain, Germany, Italy, France, Austria, Japan, Korea, India, South Africa, Brazil, Australia, and UAE. Submarine Communication cables are used by SWIFT for transmitting data. The messaging network is run from three data centers, situated in the United States, Netherlands, and Switzerland. They share data in near real time and if one data center fails, the others are able to handle the traffic of the total network. In 2009, a fourth data center was opened in Switzerland and since then European SWIFT members data are no more mirrored to the US data center. SWIFT assigns a Bank Identifier Code (BIC) to each bank involved in an international transaction. The name of the banks, the city, and the country in which the branch is located can be identified by this SWIFT code. This code is also known as the SWIFT ID or ISO9362 code. The SWIFT code can be of 8 characters or 11 characters. The first four characters signify the institute code, the next two are country code and the last two is the code for the city/location. The 11-character codes have three additional and optional characters that reflect individual branches. SWIFT doesn't hold any funds on its own. It simply provides the platform for communication regarding the international transaction. If someone wants to transfer an amount from her account to someone living abroad, she needs to visit her bank to initiate a SWIFT transaction. In order to initiate the process, she must have the account details as well as the SWIFT code of the destination bank. Once she registers the request her bank will send a SWIFT message for transferring the payment to the specific account through the SWIFT network. Upon receiving the SWIFT message about the incoming payment, the receiving bank will clear and credit the money to that specific account. Prior to the formation of SWIFT, all the messages regarding the international fund transfers were transmitted through Telex. However, it had several issues including low speed, security issues, and free message format.