In this month's newsletter, we will be discussing the SWIFT network with nearly 11,000 financial institutions and securely processing approximately 33.6 million transactions through a standardized system of codes.
As powerful as SWIFT is, keep in mind that it is only a messaging system – SWIFT does not hold any funds or securities, nor does it manage client accounts.
The Evolution of Financial Messaging
The very first international interbank telecommunication service, Telex-Messages, was built in the 1930s. Telex was hampered by low speed, security concerns, and a free message format--in other words, Telex did not have a unified system of codes like SWIFT to name banks and describe transactions. Telex senders had to describe every transaction in sentences that were then interpreted and executed by the receiver. This led to many human errors.
Thus, in 1973, 239 banks from 15 different countries worked together to create a proprietary system and founded the Society for Worldwide Interbank Financial Telecommunication (SWIFT). With SWIFT, they created common standards for the transmission of financial information through a shared global data processing and communication link.
The first message was sent in 1977 via SWIFT network. After the first message, with an ascending graph, it reached 518 customers and 10 million messages in just a year. The US joined SWIFT in 1979 and in the following year, Asian countries were also connected to the network.
In 1987, SWIFT members were demanding to expand the network by adding central depositories, exchanges, and broker-dealers. This was a massive exchange on the range of messages in the network.
Today, the globally-owned cooperative is connected to more than 200 countries and connected to over 11,000 institutions around the world. The American continent accounts for only 19% and the Asia Pacific region for 12% of global traffic. 69% of SWIFT traffic concerns Europe, the Middle East and Africa.
Nearly 43% of SWIFT traffic is for security transactions, 50% still for payment-based messages, and the remaining traffic flows to treasury transactions.
Why is SWIFT Dominant?
Although there are other message services like Fedwire, Ripple, SEPA, ACH, POS and CHIPS, SWIFT continues to retain its dominant position in the market. Its success is attributed to how it continually adds new message codes to transmit different financial transactions.
Services Offered by SWIFT
The SWIFT system offers many services that assist businesses and individuals to complete seamless and accurate business transactions. Some of the services offered include:
Applications
SWIFT connections enable access to a variety of applications, which include real-time instruction matching for treasury and Forex transactions, banking market infrastructure for processing payment instructions between banks, and securities market infrastructure for processing clearing and settlement instructions for payments, securities, Forex, and derivatives transactions.
Business Intelligence
SWIFT has recently introduced dashboards and reporting utilities which enable the clients to get a dynamic, real-time view of monitoring the messages, activity, trade flow, and reporting. The reports enable filtering based on region, country, message types, and related parameters.
Compliance Services
Aimed at services around financial crime compliance, SWIFT offers reporting and utilities like Know Your Customer (KYC), Sanctions, and Anti-Money Laundering (AML).
Messaging, Connectivity, and Software Solutions
The core of the SWIFT business resides in providing a secure, reliable, and scalable network for the smooth movement of messages. Through its various messaging hubs, software, and network connections, SWIFT offers multiple products and services which enable its end clients to send and receive transactional messages.
How Does SWIFT Make Money?
SWIFT is a cooperative society owned by its members.14 Members are categorized into classes based on share ownership. All members pay a one-time joining fee plus annual support charges which vary by member classes. SWIFT also charges users for each message based on message type and length. These charges also vary depending upon the bank’s usage volume – different charge tiers exist for banks that generate different volumes of messages.
In addition, SWIFT has launched additional services. These are backed by the long history of data maintained by SWIFT. These include business intelligence, reference data, and compliance services and offer other income streams for SWIFT.
SWIFT Providers
To be a member of the SWIFT network and to use financial messaging, every financial institution needs to work with a SWIFT solution provider.
There are two types of SWIFT providers: third-party resellers and SWIFT library experts. Their expertise is extremely different from each other. Selecting library experts would be safer for financial institutions as third-party resellers won’t be able to provide the need for maintenance, customization, and support.
A SWIFT provider should be experienced in understanding the SWIFT rule book and error codes. Because they are extremely complex for solution providers without the specialist domain experience.
Of course, one could also do everything inhouse. The problem is, it takes time to set it up, and requires time to update the system with new changes.
A compromise could be where a financial institution has their own in-house system, and add SDK modules in their own software applications to facilitate various specific functions while leaving other modules they do not need alone.
Because of the frequent changes (The implementation of the new ISO20022 standard is a perfect example. The upgrade requires so much time that the deadline has been extended for 1 year) using a suite or stand-alone modules make a lot of sense.
Solution providers also offer cool service like message checker, where a SWIFT operator can check if it is valid before sending it.
As powerful as SWIFT is, keep in mind that it is only a messaging system – SWIFT does not hold any funds or securities, nor does it manage client accounts.
The Evolution of Financial Messaging
The very first international interbank telecommunication service, Telex-Messages, was built in the 1930s. Telex was hampered by low speed, security concerns, and a free message format--in other words, Telex did not have a unified system of codes like SWIFT to name banks and describe transactions. Telex senders had to describe every transaction in sentences that were then interpreted and executed by the receiver. This led to many human errors.
Thus, in 1973, 239 banks from 15 different countries worked together to create a proprietary system and founded the Society for Worldwide Interbank Financial Telecommunication (SWIFT). With SWIFT, they created common standards for the transmission of financial information through a shared global data processing and communication link.
The first message was sent in 1977 via SWIFT network. After the first message, with an ascending graph, it reached 518 customers and 10 million messages in just a year. The US joined SWIFT in 1979 and in the following year, Asian countries were also connected to the network.
In 1987, SWIFT members were demanding to expand the network by adding central depositories, exchanges, and broker-dealers. This was a massive exchange on the range of messages in the network.
Today, the globally-owned cooperative is connected to more than 200 countries and connected to over 11,000 institutions around the world. The American continent accounts for only 19% and the Asia Pacific region for 12% of global traffic. 69% of SWIFT traffic concerns Europe, the Middle East and Africa.
Nearly 43% of SWIFT traffic is for security transactions, 50% still for payment-based messages, and the remaining traffic flows to treasury transactions.
Why is SWIFT Dominant?
Although there are other message services like Fedwire, Ripple, SEPA, ACH, POS and CHIPS, SWIFT continues to retain its dominant position in the market. Its success is attributed to how it continually adds new message codes to transmit different financial transactions.
Services Offered by SWIFT
The SWIFT system offers many services that assist businesses and individuals to complete seamless and accurate business transactions. Some of the services offered include:
Applications
SWIFT connections enable access to a variety of applications, which include real-time instruction matching for treasury and Forex transactions, banking market infrastructure for processing payment instructions between banks, and securities market infrastructure for processing clearing and settlement instructions for payments, securities, Forex, and derivatives transactions.
Business Intelligence
SWIFT has recently introduced dashboards and reporting utilities which enable the clients to get a dynamic, real-time view of monitoring the messages, activity, trade flow, and reporting. The reports enable filtering based on region, country, message types, and related parameters.
Compliance Services
Aimed at services around financial crime compliance, SWIFT offers reporting and utilities like Know Your Customer (KYC), Sanctions, and Anti-Money Laundering (AML).
Messaging, Connectivity, and Software Solutions
The core of the SWIFT business resides in providing a secure, reliable, and scalable network for the smooth movement of messages. Through its various messaging hubs, software, and network connections, SWIFT offers multiple products and services which enable its end clients to send and receive transactional messages.
How Does SWIFT Make Money?
SWIFT is a cooperative society owned by its members.14 Members are categorized into classes based on share ownership. All members pay a one-time joining fee plus annual support charges which vary by member classes. SWIFT also charges users for each message based on message type and length. These charges also vary depending upon the bank’s usage volume – different charge tiers exist for banks that generate different volumes of messages.
In addition, SWIFT has launched additional services. These are backed by the long history of data maintained by SWIFT. These include business intelligence, reference data, and compliance services and offer other income streams for SWIFT.
SWIFT Providers
To be a member of the SWIFT network and to use financial messaging, every financial institution needs to work with a SWIFT solution provider.
There are two types of SWIFT providers: third-party resellers and SWIFT library experts. Their expertise is extremely different from each other. Selecting library experts would be safer for financial institutions as third-party resellers won’t be able to provide the need for maintenance, customization, and support.
A SWIFT provider should be experienced in understanding the SWIFT rule book and error codes. Because they are extremely complex for solution providers without the specialist domain experience.
Of course, one could also do everything inhouse. The problem is, it takes time to set it up, and requires time to update the system with new changes.
A compromise could be where a financial institution has their own in-house system, and add SDK modules in their own software applications to facilitate various specific functions while leaving other modules they do not need alone.
Because of the frequent changes (The implementation of the new ISO20022 standard is a perfect example. The upgrade requires so much time that the deadline has been extended for 1 year) using a suite or stand-alone modules make a lot of sense.
Solution providers also offer cool service like message checker, where a SWIFT operator can check if it is valid before sending it.