Exploring SWIFT payments for global money transfers | Part 2

Have you read the first part of the blog post exploring SWIFT payments? If so, continue on this second part.

Key components of a SWIFT payment

In a SWIFT transfer, both the sender’s bank (also known as the originating or correspondent bank) and the recipient’s bank (also known as the beneficiary bank) play specific roles in ensuring that the transfer goes through without a hitch.

After compiling a SWIFT message that includes the amount to be transferred, the sender’s account number, and other details, the sender’s bank sends it to the recipient’s bank and charges a transfer fee. The recipient’s bank, for its part, verifies the SWIFT message, credits the recipient’s account with the amount specified, and may also charge a fee (unless the sender opted to pay the fees on both ends).

For a SWIFT payment to be successful, two things are necessary: a correct understanding of SWIFT codes that identify banks and branches, and the provision of accurate beneficiary and intermediary bank details. All SWIFT members receive a SWIFT code (also known as a Bank Identifier Code or a Business Identifier Code) that consists of the following:

• Bank code is represented by the first 4 digits or letters that look like an abbreviated version of the bank name.
• The sender’s country code is represented by the next two characters.
• Location of the bank’s main office is represented by the following two characters.
• And the branch code (not always used) is represented by the last 3 digits (with “XXX” standing for the bank’s head office).

As we’ve said, it’s also paramount to indicate accurate beneficiary and intermediary bank details. This is to ensure that the transfer actually reaches the recipient, to avoid delays and extra fees, and to prevent fraud.

If all the necessary information was provided accurately, the time it’ll take for a SWIFT transfer to go through will depend on several factors:

1. If the sender’s bank and the recipient’s bank do not have a direct relationship, one or more intermediary banks may be involved, which will add to the total processing time.
2. Time zone and bank working hour differences may also play a role. For instance, the sender’s bank may have completed its processing for the day before the recipient’s bank has even opened. 
3. If any aspect of the transfer raises a red flag with regard to AML/CFT screening, it may be delayed while the bank carries out additional checks. Larger transfer amounts may be subject to more extensive security checks, as well.
4. Transfers involving different currencies may take a bit longer to process due to currency exchange procedures.

Best practices and security

In order to prevent financial losses, breaches of confidential data, issues with regulatory compliance, and to secure trust in its own brand, SWIFT has developed a robust set of security protocols and messaging standards. On the side of security, it uses two-factor authentication, secure physical data centers, advanced encryption protocols, and regular security audits and inspections to ensure that its member institutions comply with all the stipulated requirements.

In addition, SWIFT employs time-tested messaging standards. First, there’s the aforementioned 8 or 11-character Bank (or Business) Identifier Code needed to direct funds to the correct bank. Second, SWIFT uses three-digit Message Types (MTs), each being assigned to a specific category of message, e.g., MT103 is the format assigned to customer transfers, while MT202 is used for bank-to-bank transfers. And third, SWIFT is in the process of migrating to ISO 20022 – an international standard that allows for more and richer data to be exchanged between financial institutions, improving efficiency, reducing error, and enhancing compliance efforts.

Finally, all SWIFT messages also go through a series of validations to ensure correct formatting, accuracy of information, and full compliance with standards.

Tips for businesses using SWIFT

To get you started using SWIFT in a secure way that minimizes the risk of fraud, we’ve put together a list of tips to keep in mind: 

1. Adhere to SWIFT’s security controls: SWIFT has established a set of security controls that all users should implement. These include secure environment control, two-factor authentication, access control, malware protection, and others.
2. Educate your employees: Training employees to recognize potential threats like phishing emails or suspicious requests can significantly reduce the risk of fraud. In addition, they should have a firm grasp on the importance of secure handling of sensitive financial information.
3. Use secure connections: When accessing the SWIFT network, always use secure and encrypted connections to prevent unauthorized parties from intercepting your communications.
4. Review and update your security measures: Cyber threats are constantly evolving, so regular reviews of, and updates to, security measures are crucial. This includes updating software, reviewing access controls, and conducting regular audits of security practices.
5. Implement dual approval processes: When making payments, it is recommended to have every transaction approved by more than one person to proceed – this helps with preventing the incidence of fraud.
6. Do regular software updates: Make sure to keep all your software up to date, thereby ensuring that you get all the benefits from patches designed to address security vulnerabilities.
7. Monitor transactions: Since early detection of irregularities can prevent fraud or limit its impact, have a system in place for on-going monitoring of all transactions capable of detecting any unusual or suspicious activity. 
8. Partner with reputable banks: Partner with reputable banks known to use robust security measures and fraud detection systems.
9. Establish clear communication channels: Establish secure channels of communication with your bank. This will allow you to quickly confirm any suspicious requests that the bank flags, or notify the bank of any irregularities you’ve detected on your own.
10. Be cautious about sharing information: Be careful about who you share your SWIFT/BIC code and other sensitive information with. Avoid using unsecured communication channels.