How the SWIFT System Works


Transferring money overseas? You can walk into a bank or just submit an online transfer request. Ever wondered how does this happen? 



Behind most fund transfers is the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system. SWIFT is a secure messaging network used by around 11000 financial institutions in more than 200 countries. Providing reliable, secure and efficient messaging services to our community of users. 

Keep in mind, SWIFT is a messaging system with its own messaging standards. It does not manage client's accounts or hold funds or securities. 

SWIFT was formed in 1974 to circumvent the issues faced by using Telex, it was slow, issues around security of message and it was free formatted text. Senders had to describe every transaction in sentences that were then interpreted and executed by the receivers.

In the beginning, SWIFT was designed to facilitate communication about Treasury and correspondent transactions only. Today, it has a host of services for 
  • Banks
  • Brokerage Houses
  • Securities and Trades
  • Clearing Houses
  • Corporates
Per an announcement, SWIFT said that through 2018, it facilitated an average of 31 million messages daily — which, on an annual basis, was up 11 percent from 2017, and represents a 56 percent increase over the past five years. Annual traffic at the most recent reading was a record of 7.8 billion messages.

What's inside? 

SWIFT assigns each financial organization a unique code that has either eight characters or 11 characters. The code is interchangeably called the bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO 9362 code. So, how is the BIC assigned? let’s take an example of HSBC Middle East, BIC code BBMEAEAD.
  • First four characters: the institute code (BBME for British Bank Middle East)
  • Next two characters: the country code (AE for the country the Arab Emirates)
  • Next two characters: the location/city code (AD for Abudhabi)
  • The last three characters: optional, but organizations use it to assign codes to individual branches. 
Assume person X who holds an account with JPMorgan Chase US 
wishes to send money to his friend in UAE who holds an account with
HSBC Bank Middle East, he can send in an online request to
JPMorgan with his friend's account and branch details. JPMorgan will
send a SWIFT message to HSBC Middle East advising credit to the
beneficiary.
The whole process can take a maximum of 5 minutes. 

Although there are other message services like Fedwire, Ripple
xCurrent, and CHIPSSWIFT 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.