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Exploring SWIFT payments for global money transfers | Part 1


Navigating the intricacies of global money transfers can be daunting, but understanding SWIFT payments can demystify the process. While many are acquainted with the term, the inner workings of this financial powerhouse remain a mystery to most. This article aims to shed light on the history, functionality, and unparalleled advantages of SWIFT payments, offering a comprehensive guide to its global dominance in financial communications. Dive in to grasp the ins and outs of this game-changing system.

How SWIFT payments were born

Replacing the outdated wire transfer system TELEX, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) was founded in 1973 by 239 banks from 15 countries. Its SWIFTnet messaging system came online in 1977, providing a unified coding system to identify banks within seconds and describe international transactions.

The aim of SWIFT was to make interbank communication faster and more secure. Based on its widespread adoption today – and the massive volume of messages it handles on a regular basis – that aim has been achieved.

However, despite the fact that most people have at least heard of the system, few of them know how it works and why it’s superior to regular wire transfers. With this in mind, we’ve put together a brief overview that covers all the basics and outlines the key reasons for SWIFT’s global dominance.

Benefits of SWIFT payments

The first key benefit of SWIFT is security and reliability. To reduce miscommunication and error, the system uses a standardized messaging protocol and stringent validation rules, ensuring that each message is precisely formatted and authenticated before transmission. It also employs advanced encryption techniques and two-factor authentication to guard against data security breaches and cyber-attacks. 

Reliable daily operation is sustained by SWIFT’s network architecture, designed to provide uninterrupted service, with multiple built-in layers of redundancy that kick in during unforeseen outages. 

Quick settlement and timely financial transactions are enabled by the system’s unified coding standard, 24/7 operation, and regular infrastructure updates in response to the growing volume and complexity of financial transactions. Even faster speeds are possible with the Global Payments Innovation that allows banks to track their payment orders in real-time, reducing the uncertainties and inefficiencies associated with traditional cross-border payments.

Being a global messaging system, SWIFT can also handle even the most complex multi-currency transactions with relative ease. For one, every SWIFT message contains a field specifying the target currency, ensuring that banks on both ends have the correct information. Moreover, the SWIFT network accommodates a wide range of financial messages beyond simple payment instructions, including foreign exchange confirmations and currency conversion requests. 

SWIFT vs. traditional wire transfers

A wire transfer is a general term for electronic funds transfer (EFT) from one person or entity to another. Wire transfers occur via a series of networked banks or transfer agencies. A SWIFT transfer, on the other hand, is a specific type of wire transfer conducted through the SWIFT network used by banks and other financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.

The benefits of SWIFT payments, as compared to traditional wire transfers include:

  • SWIFT makes it easy to track payments as they move from bank to bank, enabling the sender and receiver to know exactly when the payment was sent and received.
  • SWIFT makes communication between countries relatively seamless, which is of paramount importance to global enterprises and organizations;
  • SWIFT is less expensive than other types of international wire transfer and offers full transparency regarding fees per transaction.
  • SWIFT is by far the most popular financial messaging system in the world, which means that whoever you need to pay is likely signed up to it already.

More generally, routing payments via the SWIFT network has massively simplified the otherwise complex global transaction landscape. As we’ve already mentioned, this was accomplished through code standardization, network security, speed (1-4 working days), traceability, ubiquity, and a wide range of services for securities, treasury, cash management, trade, and other industry needs.

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