SWIFT- A look into the future
When worldwide traders needed an international platform to send money safely from one bank to another, SWIFT was the answer. SWIFT is a cooperative society of financial institutions used on every continent in more than 200 countries and connects more than 11,000 financial institutions. To look into the future of SWIFT, we first need to know what SWIFT is all about.
Workings of SWIFT.
Society for Worldwide Interbank Financial Telecommunication, or SWIFT, provides a payment method to move money globally. Funds move quickly and in a secure manner. Codes called SWIFT codes are used to send payment orders between banks. SWIFT is not a bank; it also does not work directly with money. This allows for seamless integration between different banks in different countries.
SWIFT Code
Bank Identifier codes are used by SWIFT to identify the bank where the transaction originates and the receiving bank. This whole process only takes seconds. Every SWIFT Code is unique, with 8 to 11 characters. The first part of the SWIFT Code is the bank number; for example, ING Bank has the characters INGB. The following characters are the country code, for instance, BE for Belgium. The bank location has an abbreviation in the following section, for example, BR for Brussels. Many codes stop here, but banks can opt to add characters for specific branches.
The receiving party’s account number and BIC code must be present for all transfers. This information is given to the bank originating the funds transfer, whether in person or online. The bank will send the secure SWIFT order over the SWIFT network to the receiving party’s bank, known as a SWIFT message. The receiving bank will acknowledge receipt and credit the funds to the receiving party’s account while the senders’ bank debits the sender’s account. SWIFT transfers can be costly as even small transfers are subject to service fees from multiple banks.
Swift Message
All SWIFT messages use SwiftNet, which uses ISO 20022 encryption and transmission standards. Swift uses a Virtual Private Network (VPN) that ensures the privacy of the message. Swift uses four different messaging services. FIN, the oldest messaging service, is also the most widely used of the four and features the possibility to send messages while the client is offline. InterAct is a service based on FIN but can provide more comprehensive messages and uses XML-based Swift MX (Message Exchange). FileAct is used to transfer bulk messages and can include images. WebAccess is a secure method for uploading sensitive messages and for browsing safely.
Future of SWIFT
Due to political tension and conflict on an international level, the future of SWIFT is uncertain. Sanctions prevent Russia, North Korea, and Iran from using the SWIFT platform. SWIFT can be slow and faster, and more efficient possibilities are emerging. Global ACH is one way of sending money between US and foreign banks leveraging the international banking network in Europe.
Countries like China, the UK, Australia, Canada, India, and Singapore are linking networks to support international payment networks to facilitate lower-cost, instantaneous payments. However, the service excludes many local banks.
Using international card networks makes accepting cross-border payments much more accessible. Many businesses in the commerce section benefit from the ease of use and secure payments this provides, especially in a future where more companies are moving into the online sales realm. The SWIFT interface still provides an infrastructure many card operators use. Stepping away could take some time and consideration.
Another service to keep an eye on is Fintech. Fintech makes cross-border payments possible using providers Airwallex, Nium, and WISE. With a pre-funding capability, payment seems almost instantaneous and easily integrates with other services.
SWIFT is displaying resilience and the ability to adapt. However, SWIFT is a 40-year-old technology, and the demand for low-cost, fast payments on an international level could slow down the need to use SWIFT infrastructure.
Switching to another platform that would provide the same level of service will not be fast. We can expect to see the use of SWIFT continuing for the foreseeable future. Unless SWIFT continuously significantly improves the cost and “swiftness” of transfers, customers might in future seek alternative means of getting funds to their destination.
The 2023 joining of forces between SWIFT and WISE has set the stage for some vast transfer improvements, allowing SWIFT to send payments over the WISE network. This move has strengthened SWIFT’s position in the payment platform market and could help it remain an industry leader.
Summary
It is an exciting time for foreign payment technology as consumerism gets more interconnected, and the demand for transparent transactions, secure payments, and speedy delivery increases. With the leaders in the pack being Fintech, SWIFT, and Bitcoin, we can expect them to leverage the strength of technology to build a better payment future for us all.
Learn more about our SWIFT CSP Assessment Services.
