What you need to know about SWIFT

In 2021, banks and other financial institutions used SWIFT to conduct 4.2 million financial transactions per day throughout the world. In comparison to daily transactions in 2020, the transaction rate is 11.4% greater now. This sort of information was just added to the official website of SWIFT, a company that provides financial messaging services or financial data transactions.

SWIFT added on its website that the highest-ever message traffic (message through communication system) was recorded on November 30, 2021. It was about 5.3 million numbers of messages that occurred on that day. This message traffic record crossed the previously highest record by 8.5% on a single day.

The average amount of financial messages through using the SWIFT channel was 4.6 million in the year 2022. SWIFT keeps updating its website data regarding its financial message traffic on a regular basis. (www.swift.com)

By going through the surprising data, it is clear that ‘SWIFT’ is one of the most significant ones which has to be studied properly in order to get a clear understanding of the financial sectors from an international perspective.

Let’s get to know some important data about SWIFT, a financial messaging platform that is also known as the “atomic bomb’’ of the financial sector.

What is SWIFT?

The full form of SWIFT is Society for Worldwide Interbank Financial Telecommunication, which is basically a global financial messaging platform. The most important aim of developing SWIFT is to create a faster network between banks and financial institutions worldwide and deliver financial messages and information from one network to another instantly.

This SWIFT is also known as Worldwide Interbank Financial Telecommunication.

SWIFT: When, Where, and How

SWIFT started its journey in 239 banks from 15 different countries in 1973. Its headquarter is situated in La Hulpe, Belgium. SWIFT started providing SWIFT financial messaging services instead of telex technology in 1977 although its initial phase started in 1973. Usually, creating a more reliable and secure messaging service was the main aim of working behind the leading objective.

518 financial institutions from 22 countries got connected with the SWIFT messaging service in 1977. In the later years, this messaging service has been globally defined as an important segment of the financial sector.

At present, SWIFT has been working for more than 200 countries of the world where it is connected with more than 11 thousand financial institutions. Currently, SWIFT has 26 offices worldwide.

Who Controls SWIFT

Basically, the United States and European banks founded this Belgian-based institution. SWIFT is a partnership network corporation that has roughly 2000 banks and other financial institutions as stockholders.

These shareholders elect a board of 25 independent directors, representing banks around the world. They basically manage Swift and oversee the management of the company. A team of full-time employees led by the CEO serves as the executive committee.

All major G-10 central banks, including the Federal Reserve Bank of the United States and the Bank of England, oversee Swift's operations. In addition, the National Bank of Belgium oversees Swift's operations (G-10 Central Banks are as follows- Belgium, Canada, France, Germany, Italy, Japan, Netherlands, United Kingdom, United States, Switzerland, and Sweden).

How SWIFT is operated?

As it is not a payment system, no money can be transacted directly through SWIFT. However, trillions of dollars of transaction information are exchanged using SWIFT every year. SWIFT is basically a messaging platform, whose main function is to instantly inform users about any transaction that occurred.

Banks use the SWIFT channel to pay merchants for cross-border transactions. Not only traders but also the governments of different countries have started transacting through the SWIFT network. In this case, the transactions are done through the central banks or commercial banks of the countries.

The is SWIFT Code?

The Swift Code is a special code approved by the Swift Platform that identifies a specific organization name, country name, city name, and branch name. Swift code is required only when a person or organization wants to send money to a foreign account.

A unique code of 8 or 11 characters is assigned to each organization in the Swift Network. This is called the Business Identifier Code (BIC). This BIC code is the Swift code we were discussing above.

This code has received recognition by the following three names:
1. The Business/Bank Identifier Code (BIC)
2. SWIFT Code
3. SWIFT ID or ISO 9362 Code

By whatever name this SWIFT code or SWIFT ID or ISO 9362 got its recognition, this BIC is a standard format of those Business Identifier Codes approved by the International Organization for Standardization (ISO). Such unique codes are used to facilitate the automatic processing of information of all financial and non-financial institutions.

There are two types of BIC codes for SWIFT networks. One is the Connected BIC Codes Connected BICs) with which SWIFT is connected. The other is non-connected BIC codes (Non-connected BICs) with which SWIFT is not connected, it is used for reference only.

Now the major point of discussion is what do 8 characters and 11 characters of codes actually indicate?

What are the elements found in a code which consists of 8 characters?

The first 4 characters of the 8-character Swift code can be used to identify the initial name of the bank or business organization, the next 2 to identify the country, and the last 2 to identify the city.

Example:
The SWIFT Code of Islami Bank Bangladesh Limited- IBBLBDDH.
Here, the first four characters imply the bank code- IBBL= Islami Bank Bangladesh Limited
The next two characters signify the country code- BD= Bangladesh
Finally, the last two characters imply the city code- DH= Dhaka

What do you mean by a SWIFT code that consists of 11 characters?

The first 8 of the 11-character Swift code identify the bank's initial name, country, and city in the same way. The next 3 characters or numbers can be used to identify a particular branch of a bank or organization. However, 3 characters are optional. Transactions can be done without them too.

Example:
The SWIFT Code of Islami Bank Bangladesh Limited's Barisal Branch- IBBLBDDH111. Here-
The first four characters imply the bank code- IBBL= Islami Bank Bangladesh Limited
The next two characters signify the country code- BD= Bangladesh
The latter two characters imply the city code- DH= Dhaka
And finally, the last three characters signify the branch identifier code- 111= Barisal Branch

How can we transact via a SWIFT code?

Let's say you want to transfer money from your City bank account to a buddy who lives in the US and has a Bank of America account at a particular location. To conduct the transactions with that friend financially, all you have to do is-
1. Your friend's Bank of America account number
2. Your friend’s name
3. SWIFT code of the specific branch of the bank

Once City Bank has been given proper information, City Bank will use the SWIFT Network to issue a request for a money transfer to that specific Bank of America branch. The money is credited to your friend's account after being validated and cleared that are received by Bank of America from that specific branch.

Is it possible to transact overseas without using SWIFT Code?

A bank that has a SWIFT code works with institutions that don't have one to conduct financial transactions. This third bank serves as a bridge for financial transactions. Bangladesh, like the majority of other countries and financial institutions, is linked to the Swift network.

Overseas transactions can also be done with an IBAN code instead of the SWIFT code. The full form of IBAN is- International Bank Account Number (IBAN). IBAN code is another standard format of business identifier code, similar to the SWIFT code or BIC code, which is approved by the International Organization for Standardization (ISO).