The Society for Worldwide Interbank Financial Telecommunication (SWIFT) has gained recent attention amidst geopolitical developments in Eurasia. Despite common misconceptions, SWIFT functions primarily as a messaging system rather than a direct payment platform for international transactions.
What is SWIFT and How Does It Operate?
SWIFT facilitates monetary transfers between countries through a network comprising over 11,000 financial institutions and corporations spanning 200+ nations. Each participant in the SWIFT network possesses a unique 8 to 11 character code. This code identifies the institution (first 4 characters), its country (next 2 characters), specific location (next 2 characters), and branch (final 3 characters), ensuring secure and efficient transaction processing.
For instance, when an individual in the USA wishes to transfer funds to someone in the UK, they utilize the recipient’s account number alongside the bank’s SWIFT code. This process triggers adjustments in the respective bank balances without physical movement of money, through nostro/vostro accounts (Yours/Ours Accounts).
Key Insights into SWIFT
- Messaging System, Not Payment System: Contrary to popular belief, SWIFT serves as a secure messaging conduit, enabling swift and safe global money transfers via computers or bank branches.
- Global Reach and Usage: SWIFT handles a staggering average of 42.1 million daily messages as of January 2021, with over 56% of international payments now utilizing SWIFT gpi, totaling more than $300 billion daily.
- Beyond Banks: SWIFT is utilized by various financial entities including brokerage firms, trading houses, and corporate entities dealing with financial transactions.
- Safety and Compliance: Transactions via SWIFT benefit from real-time tracking using Unique End-to-End Transaction Reference (UETR) codes, enhancing security against fraud and money laundering. Additionally, SWIFT’s KYC registry aids in compliance with international sanctions and regulations.
- Challenges and Alternatives: Despite its advantages, SWIFT transactions can be costly (ranging from $35 to $125) and time-consuming, particularly for complex transactions. This has led fintech firms to explore blockchain technology as a potentially more cost-effective and efficient alternative.
Future Prospects
While SWIFT continues to facilitate global transactions reliably, challenges such as high costs and security concerns prompt exploration of blockchain technology as a potential substitute, especially in the realm of corporate transactions.
About Mena Advisory
Mena Advisory is a UK based consultancy with International Consultancy in fintech and payments, committed to navigating the evolving landscape of digital payments. Our services include commercial and technical due diligence, strategic planning, digital transformation, and restructuring support for businesses in the digital banking and mobile payments sectors.
For more information on how we can assist your business, please contact us at info@madvisory.qa.