SWIFT is the Society for Worldwide Interbank Financial Telecommunication. It is World’s leader in the field of international financial telecommunication services. SWIFT main line of business is providing of prompt, reliable, highly efficient, confidential and secure communications platform. It also handles the standardization of forms and methods of financial information exchange.
Almost all types of financial operations are done through SWIFT channel, including money transfers, account statement transmission, confirmation of foreign exchange deals, collection of payments, letters of credit settlement, trade in securities, negotiation of disputed issues and many others. Meanwhile SWIFT does not hold funds nor does it manage accounts on behalf of customers or acts as a clearing agent. It’s only the communication network. Transmitted messages are then recorded as book entries on NOSTRO and LORO accounts the same way as they done with traditional payment documents. SWIFT is non-profit organization, all profits earned are spent on covering of the cost incurred and development of the system.
More than 50 national payment systems are built on SWIFT basis. It is also the master settlement system for The Euro Banking Association (EBA) and European clearing system TARGET. Nowadays more than 60% of world clearing settlements are done through SWIFT-based payment networks.
Accuracy of message transmission is achieved through network buildout, special message input/output order with “on spot” reservation of network segments.
Multilevel combination of physical, technical and organizational protection methods enables highest possible security and confidentiality of transmitted data.
Lower costs comparing with traditional telecommunication channels. Standard message (up to 325 bites) cost does not depend on distance and is lower than telex or telegraph expenses because of high density of information flows.
Fastest data transfer speed. A message could be delivered to any part of the World within 20 minutes or even within 5 minutes for priority messages. It’s faster than in any other channel – for example, similar telegraph transmission would take approximately 90 minutes. Delivery time is reduced through eliminating of in-between network segments and when a sender can commute a recipient on-line the data transfer will take few seconds.
Since all payment documents have been inputted in the system in standard form this facilitates data processing and increase efficiency. Transaction execution records provide total control over all passing orders and enable automated preparation of daily reports. Standardization helps to overcome language barrier and difference in national financial practices.
SWIFT provides financial guarantee to all its members, i.e. if any message is not delivered to recipient within 24 hours due to platform failure the Society will cover all direct and indirect losses inflicted to the customer.
The main disadvantage of the system from customer’s perspective is high entering fees. Total expenses of a bank, willing to become member of SWIFT, could reach 160-200 thousand USD. It cause excessive burden for small and medium sized financial institutions. Another weak point is strong dependence of system’s internal structure on rather complicated technical appliances what inevitably causes exposure of malfunction.
SWIFT is a cooperative society under Belgian law and is owned and controlled by member banks. The headquarters are located in La Hulpe, Belgium, not far from Brussels. The members elect a Board of 25 independent Directors, which governs the society and oversees the management. The directors are elected by the Annual General Meeting of shareholders for a term of three years. All decisions are taken by majority of votes and one share constitutes for one vote. Shares are distributed among member banks according to the volume of message traffic. Majority is held by banks from USA, Germany, Switzerland, France and Great Britain so leading roles in the Board are also played by representatives of these countries.
Any bank may become member of SWIFT if it has a right to execute international financial transactions according to national law. Except of full membership there are another two options of participation. Associated members, usually branches and subsidiaries of member banks, do not hold shares in the society and are not involved in its management. Low-volume customers, such as brokers, clearing and insurance companies, investment firms, are referred as participants and access SWIFT through shared infrastructure.
Technical architecture of SWIFT system consists of numerous data centers spread all over the World and connected via high-speed data lines detached from national state or commercial telecommunication networks. The double heart of the system is two data processing centers, one in the United States and one in the Netherlands. They commute with regional centers in every member state.
SWIFT messages are comprised of standard fields fully identifying all relative details of a payment and its participants. Today 7 different groups are in use, each includes more than 70 message types. The types are designated to perfectly reflect content of financial operations, executed by system’s participants.