SWIFT

PAYMENTS
Dharanya Sathish Kumar
INTRODUCTION
 SWIFT was created to help banks communicate faster and more securely among themselves in
relation to the processing of international payments.
 SWIFT’s full form is Society for World Wide Inter-Bank Financial Telecommunication.
 SWIFT is a platform that provides nationwide financial institutions a secured, standardized,
and an encrypted network in the reliable environment for the transfer of various important
information which can be from one branch of a  financial institution to another branch or from
one financial institution to another financial institution and it also provides software for
maintaining the various information.
WHAT ARE SWIFT PAYMENTS
 SWIFT payments–or international wires–are a type of transaction where the SWIFT
international payment network is used to send or receive international electronic payments.
 The SWIFT network doesn’t actually transfer funds but instead, sends payment orders
between banks using SWIFT codes. It’s a means to transfer money overseas quickly,
accurately, and securely.
 In 2019, more than 11,000 SWIFT member institutions sent approximately 33.6 million
transactions per day through the network.
 The SWIFT payment network allows individuals and businesses to accept/send international
money via electronic or credit card payments. This can be done even if the customer or vendor
uses a different bank than the payee.
 The network is a place for secure financial messaging. In a sense, it’s nothing more than a
messenger between banks. 
SWIFT CODE
 When we use SWIFT, you are not actually sending a money transfer. Instead, it is referred to
as a “payment order” between two banks. This is done using a SWIFT code. 
 SWIFT network that standardized the formats for IBAN (international bank account numbers)
 and BIC ( bank identifier codes). SWIFT owns and administers the BIC system. This means it
can identify a bank in seconds and send a secure payment quickly.
 A unique SWIFT code is comprised of 8 or 11 characters. Other names for this same code
include:
• Bank identifier code (BIC)
• SWIFT Code
• ISO ID or Swift ID
EXAMPLE
EXAMPLE OF SWIFT CODE
.
let’s take an example of
4-
State bank of India, Institute
an Indian bank, code
headquartered in Guntur

2-
3-
Branch SBININBB181 Country
code

2 - City
code
SWIFT CODE VS IFSC CODE
BASIS FOR COMPARISON SWIFT CODE IFSC CODE
Stands for Society for Worldwide Interbank Financial Indian Financial System Code
Telecommunication Code.

Meaning A worldwide recognized identification code A code that distinctively identifies a bank-
used at the time of international credit branch involving in an electronic fund
transfer between banks and also when there transfer system in India IFSC code.
is an exchange of messages between banks
is SWIFT code.

Developed by International Organization for Reserve Bank of India (RBI)

Standardization (ISO)

Applies to Only SWIFT enabled banks. All the bank branches in India.

Characters 8 or 11 11
Fee High Nominal
Found in Bank's website or the account statement. Bank-branch cheque book and RBI website.
WHO USE SWIFT
 SWIFT network has expanded over the years, and presently the following institutions use the system.
 Banks
 Securities Dealers
 Clearing Houses
 Exchanges
 Corporate Business Houses
 Brokerage Institutes
 Asset Management Companies
 Depositories
 Treasury Market Participants 
 Foreign Exchange & Money Brokers
NASTRO ACCOUNT
 A Nostro account is a reference used by Bank India to refer to "our" account held by Citi Bank
. Nostro is a shorthand way of talking about "our money that is on deposit at your bank.”
VOSTRO ACCOUNT
 Vostro is the term used by Bank Citi Bank, where bank SBI's money is on deposit. Vostro is
refers to "your money that is on deposit at our bank."
HOW SWIFT PAYMENT WORK
 Your US client, banks with Bank of America, gives instructions to pay USD 15,000 to your
bank account with DBS Hong Kong. 
 Because both banks are members of the SWIFT network, the payment will be processed using a
SWIFT message
 Scenario 1 – Both banks have a direct commercial relationship via a Nostro / Vostro
account
 SWIFT message issued by Bank of America will be directly addressed to DBS Hong Kong and the
funds are transferred directly between the two banks as follows:
 Bank of America will debit your US client’s bank account by USD 15,000
 Bank of America will credit USD 15,000 to its Nostro account opened with DBS Hong Kong
 DBS Hong Kong will debit USD 15,000 from Bank of America’s Nostro Account
 DBS Hong Kong will credit USD 15,000 to your bank account, minus any fees charged for the
transfer.
SCENARIO 2 – BOTH BANKS DON’T HAVE A DIRECT COMMERCIAL RELATIONSHIP (I.E. NO NOSTRO / VOSTRO ACCOUNT)

 That’s where intermediary banks (also known as correspondent banks) come into the picture.
 Assuming that Deutsche Bank plays the role of the intermediary bank in this transaction, this is what would
happen:

 Bank of America will debit your US client’s bank account by USD 15,000

 Bank of America will credit USD 15,000 to its Nostro account opened with Deutsche Bank
 Deutsche Bank will debit USD 15,000 from Bank of America’s Nostro Account
 Deutsche Bank will deduct its fee (let’s say USD 20) for facilitating this transaction and credit the balance,
ie. USD 14,980, to their Nostro Account with DBS Hong Kong.
 DBS Hong Kong will debit USD 14,980 from Deutsche Bank’s Nostro Account
 DBS Hong Kong will credit USD 14,980 to your bank account, minus any fees charged for the transfer.
 SWIFT MESSAGE TYPE
 Category 1 – Messages starting MT1xx –  Customer Payments & Cheques
 MT101 – Request for Transfer

 Category 2 – Messages starting MT2xx – Financial Institution Transfers

 Category 3 – Messages starting MT3xx – Treasury Markets, to handle Foreign Exchange, Money Markets and Derivatives
 Category 4 – Messages starting MT4xx – Collection & Cash Letters
 Category 5 – Messages starting MT5xx – Securities Markets
 Category 6 – Messages MT600 – MT609 – Treasury Markets – Previous Metals
 Category 6 – Messages MT643 – MT649 – Treasury Markets – Syndications
 Category 7 – Messages starting MT7xx – Documentary Credits & Guarantees
 Category 8 – Messages starting MT8xx – Travellers Cheques
 Category 9 – Messages starting MT9xx – Cash Management & Customer Status
 MT900 – Confirmation of Debit
 MT940 – Customer Statement Message
 MT942 – Interim Transaction Report
PAYMENT MESSAGE
SWIFT MESSAGE STRUCTURE
 A SWIFT FIN is a message type (MT) that transmits financial information from one financial
institution to another:
 {1:} Basic Header Block
 {2:} Application Header Block
 {3:} User Header Block
 {4:} Text Block
 {5:} Trailer Block
BASIC HEADER BLOCK
 It will typically consist of something like: {1:F01YOURCODEZABC1234567890}where:
 {1: – Identifies the Block – i.e. the Basic Header Block
 F – Indicates the Application Id – in this case, FIN
 01 – Indicates the Service Id
 01 = FIN
 21 = Acknowledgement (ACK) or Negative Acknowledgement (NAK)
 YOURCODEZABC – The Logical Terminal Address – which is typically your BIC 8
(YOURCODE) + Logical Terminal Code (Z) + Branch Code
 1234 – Session Number
 567890 – Sequence Number
 } – Indicated the end of the Basic Header Block
APPLICATION HEADER BLOCK
 It will look something like: {2:I101YOURBANKXJKLU3003} where:
 {2: – Indicates the start of the Application Header block
 I – Informs you that you’re in Input mode (i.e. the Sender),
 O -Output mode – so you would be the recipient of the message
 101 – Message type – in this case, an MT101
 YOURBANKXJKL – The recipients BIC, consisting of their BIC (YOURBANK) + Recipients Logical
Terminal Code (X) + Recipients Branch Code (JKL)
 U – Message Priority:
 U – Urgent
 N – Normal
 S – System
 3 – Delivery Monitoring
 Optional003 – Non-delivery notification period
 } – Indicated the end of the Application Header Block
USER HEADER BLOCK
 It will look something like: {3:{113:SEPA}{108:ILOVESEPA}} where:
 {3: – Indicates the start of the User Header Block
 {113:SEPA} This is an optional 4 alphanumeric bank priority code
 {108:ILOVESEPA} – Indicates the Message User Reference, which can be up to 16 characters, and
will be returned in the ACK
 } – Indicated the end of the User Header Block
TEXT BLOCK
 It will look something like: {4:
 Followed by the details of the message you’re sending.
 In this case, it is a MT101 – as indicated in Application Header Block message type.
 Finally ending with -}
TRAILER
 The Trailer Block will always starts {5:

Checksum
{CHK:123456789A
CHK - Checksum M calculated for all {CHK:12!h}
BC}}
message types
MT101 MESSAGE
MT101 /MT103 MESSAGE
Thank You