SWIFT Network is the internationally relied upon system for transferring money. It underlies the overwhelming majority of security and international money transfers. This vast network for financial messaging is employed by financial institutions such as banks to rapidly, securely, and accurately receive and send information that includes instructions for money transfers. In any given day, almost 10,000 different member institutions of the SWIFT system deploy around 24 million unique financial messages throughout this truly impressive worldwide network.
SWIFT is an acronym that actually means the Society for Worldwide Interbank Financial Telecommunications. This messaging network securely transmits both instructions and sensitive information for financial institutions using a standardized operating system of codes. In order for this amazing system to work, SWIFT itself gives a one of a kind identification code to every financial institution in the world which participates. These codes are comprised of either 11 or eight characters. Names for this code range from SWIFT Code and SWIFT ID to BIC bank identifier code and ISO 9362 code. It should not be confused with the similar yet still different IBAN International Bank Account Number.
An example of one such SWIFT code for a member institution is helpful to look at in order to better understand how SWIFT puts these identifiers together. Consider UniCredit Banca based in Milan, Italy. The eight character SWFT code for UniCredit Banca proves to be UNCRITMM, which stands for UNI CREDIT ITALY Milan (Milan is identified with two Ms). SWIFT always takes the first four letters from the institution’s name, making up the institute code. The second two letters are the national code. The next two characters represent the city location code. Another optional three characters stand for the individual branch within a large bank, as in using ZZZ to represent a particular branch location.
Thought SWIFT is undoubtedly a powerful institution and system in the world today, it does not ever hold or touch any securities or cash. It also never manages accounts for clients. Instead it is simply a financial transaction messaging system. Yet this service is critical in today’s fast moving world of finance, business, and banking.
This is because the world before SWIFT was a ponderous place in which to do international wire and bank transfers. Before the advent of SWIFT, there was only the Telex system to send the international wire transfer message confirmations. Telex was fraught with problems. Among these were it had security issues, was terribly slow, and lacked a unifying system of standardized codes as SWIFT possesses for naming both the banks and the types of financial transactions being conducted.
A sender with Telex was forced to detail out each and every transaction utilizing sentences that had to be first interpreted then executed by the receivers on the other end. As these people often spoke other languages besides the lingua franca English, it led to countless human errors and mistakes in ultimate transmission.
In order to get around these many problems, seven of the biggest international financial institutions came together to create a cooperative society and system whose entire reason of being was to run a global financial network with would relay such critical financial messages utilizing both speedy and secure means. It only took SWIFT three years to grow rapidly from the original seven founding banks to 230 banks in five nations.
Despite the fact that competing financial messaging services such as FedWire, CHIPS, and Ripple exist, SWIFT has continued to enjoy its now-dominant market share and position. Many observers have noted that this stems in large part from the way it constantly comes up with newer message codes for various financial transactions.
Besides the simplified payment instructions SWIFT arose to deliver, the network additionally delivers messages for a significant and broad-based number of treasury and security transactions throughout the globe. Almost half of the SWIFT worldwide traffic still stems from the traditional heart of the network, the payment messages. An impressive 43 percent today pertain to security transactions. The other under ten percent deals with treasury transactions.
SWIFT has continued to evolve and grow into other related businesses. Today it also deploys its lengthy data maintenance history to deliver reference data, business intelligence, and compliance information services. An area it is addressing now is the delivery and implementation of software automation for its financial transaction messaging system. The company has successfully created and tested such software, but its use and deployment will come at a higher cost to participating banks.