With an International Debit Card, money can be withdrawn at any where in world, the card holder need not have an account with the card issuing financial institution. How this happens?
SWIFT in Investment Banking Settlements: As given by Investopedia SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications. It is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes.
SWIFT SYSTEM
The service of Telex is too slow and had no standardized format for the data it transfers, added up to an inefficient system apart from its insecurity. In order to solve the demerits of Telex services seven major international banks gathered together to discuss a suitable replacement of telex in the year 1974. After three years, in 1977, a society was formed and 230 member banks from 5 countries started operation of SWIFT. SWIFT has now more than 10000 members worldwide (more than 200 countries) handles more than 15 million messages daily. Any financial institution who holds a banking license can become a member of SWIFT by paying a joining fee and service charge for each message sent.
Using these messages, banks can exchange data for funds transfer between financial institutions. SWIFT enables customers to automate and standardise financial transactions, thereby lowering costs, reducing operational risk and eliminating inefficiencies from their operations.
Although there are other messaging services available such as Fedwire, Ripple and CHIPS, SWIFT maintains its dominant market position. It does this by continually investing in innovation and adding new message codes to further facilitate funds transfer and straight through processing. One recent initiative introduced by SWIFT is the Global Payments Innovation (gpi) which aims to increase the speed, predictability and transparency of cross-border payments.
Business to business wire transfers through banks have always been slow and costly despite technological advances which have seen other areas in the payments industry progress. Over 90 leading transaction banks from Europe, Asia Pacific, Africa and the Americas are already signed up to the SWIFT gpi initiative which is now in operation. The first phase of the SWIFT gpi focuses on B2B payments. The goal is to help corporates to improve supplier relations whilst achieving greater treasury efficiencies by enhancing the payments service:
• Beneficiaries will now receive same day access to payments instead of waiting periods of several days.
• Businesses will know in advance how much a bank transfer will cost adding further transparency to fees in the transfer process.
• End to end payments tracking through a cloud based service will allow easy tracing of funds from initiation through intermediary banks to the recipient bank account. Message notification that funds have reached the beneficiary account will also be sent to the payer.
Swift Code is a standard format of Bank Identifier Codes (BIC) and it is unique identification code for a particular bank. These codes are used when transferring money between banks, particularly for international wire transfers. Banks also used the codes for exchanging other messages between them.
The Swift code consists of 8 or 11 characters. When 8-digits code is given, it refers to the primary office. The code formatted as below;
AAAA BB CC DDD
First 4 characters - bank code (only letters)
Next 2 characters - ISO 3166-1 alpha-2 country code (only letters)
Next 2 characters - location code (letters and digits) (passive participant will have "1" in the second character)
Last 3 characters - branch code, optional ('XXX' for primary office) (letters and digits)
SWIFT is solely a carrier of messages. It does not hold funds nor does it manage accounts on behalf of customers, nor does it store financial information on an on-going basis. As a data carrier, SWIFT transports messages between two financial institutions. This activity involves the secure exchange of proprietary data while ensuring its confidentiality and integrity.
There are four key areas that SWIFT services fall under within the financial marketplace. They are Securities, Treasury and Derivatives, Trade Services, and Payments & Cash Management.
SWIFT messages consist of five blocks of data including three headers, message content, and a trailer. They are identified in a consistent manner. They all start with the literal ‘MT’ which denotes Message Type. This is followed by a 3-digit number that denotes the message type, category, and group.
MT103 for example, is a SWIFT payment message type used in cash transfers specifically for cross border / international wire transfer and is predominately used between Banks and Non-Bank Financial Institutions. MT103 is used to make a single payment and it has a large number of options to describe exactly how the payment should be (for example, determining the beneficiary account and sender bank details).Few other multiple standard file formats used are EDIFACT, ANSI X12, SAP and ISO 20022 XML formats.
