SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL

TELECOMMUNICATION (SWIFT)

WHAT IS SWIFT? (Medium.com, faisalkhan.com, howtoimportexport.com)

 The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is the
network which enables banks and other financial organizations all over world to send and
receive financial transaction information in a standardized, secured and reliable
environment through a standardized system of codes.

 SWIFT assigns each financial organization a unique code that has either eight characters
or 11 characters and it identifies not only the bank name but country, city and branch. The
code is interchangeably called the bank identifier code (BIC), SWIFT code, SWIFT ID,
or ISO 9362 code.

 SWIFT does not transfer money nor is it a bank. SWIFT is a messaging network. SWIFT
simply passes messages between banks in a very secure manner. It facilitates the
compliance and tracking of the monies across nations.

How does a SWIFT transaction works? (thestreet.com)

A typical SWIFT transaction works in the following way:

For example, if a HDFC Bank customer living in Mumbai, India wants to send funds to a family
member who has an account with Wells Fargo in New York, USA, they would do the following:

 The Indian customer would go to their local HDFC branch. They would provide the bank
account number of their family member in USA and the unique SWIFT code of the Wells
Fargo in New York.

 HDFC Bank would send a SWIFT message communicating the request to transfer money
to the Wells Fargo in New York.

 Wells Fargo would receive the SWIFT communication from HDFC Bank about the
payment and would allow the money to be credited to the family member's account.

This simple process allows money to be transferred safely and securely around the world on a
day-to-day basis.
How does the message flow in a SWIFT transaction? (SWIFT - Susan V. Scott and
Markos Zachariadis)

Sending Bank Receiving Bank

Full Payment Full Payment

Message Message

Settlement
Institution

SWIFT’s primary role is to carry the messages containing the payment instructions between
financial institutions involved in a transaction. However, since SWIFT is not a clearing or
settlement institution and does not operate a core payment infrastructure, the need to
communicate the details of the transaction with a clearing house (where applicable) and a
settlement institution remains. Depending on the payment system architecture, the routing of the
messages can take many different forms.

The simplest and most popular structure of message flows used by the majority of RTGS
systems around the world is the V-shaped structure depicted in above figure. According to this,
when a payment is initiated, the sending bank transmits a message to the core infrastructure of
the settlement institution. Once the settlement process has finished, another message is generated
from the core infrastructure with a settlement confirmation and is forwarded to the receiving
bank.

Why SWIFT is dominating? (swift.com)

There are 11,000+ institutions connected to SWIFT in 200+ countries and territories. Although
there are other message services like Fedwire, Ripple, and CHIPS, SWIFT continues to retain its
dominant position in the market. Its success is attributed to how it continually adds new message
codes to transmit different financial transactions.

SWIFT Messages and Performances-

Total Messages (Year 2020) – 2807 Mn
Network availability – 99.999%
Growth YTD – 15.89%

Key benefits of SWIFT – (Accesspay.com)

 Standardization – For businesses doing global trade, having numerous bank accounts
in different countries can make things complicated.

SWIFT gives them a' single window' for their financial messaging, allowing them to:
• Improve their connectivity with banks in different countries.
• Get full global visibility of their cash position.
• Make better informed global cash management decisions.

 Security – SWIFT guarantees the delivery of message, and has a network and system
availability greater than 99.99%.SWIFT has elaborate contingency plans including data
encryption, audit tracing and intrusion detection to ensure data confidentiality and
integrity.

Author – Keval Shah

(CA, FRM 2 Candidate)