Society for Worldwide Interbank Financial Telecommunications (SWIFT) Definition
Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a not for profit cooperative society formed by European Bankers to provide a network for a secure and standardized communication about transactions between the member banks. It was formed in 1973 with the support of 239 banks from across 15 countries. Presently, it operates in 210 countries and connects more than 11,000 financial institutions.
SWIFT is owned by its member financial institutions and uses a standardized propriety communication platform for sending and receiving information regarding financial transaction among its members, in a secure and reliable environment.
A Little More on What is the Society for Worldwide Interbank Financial Telecommunications (SWIFT)
The SWIFT has its headquarters in Belgium and is formed under Belgian law. It has offices in the United States, the United Kingdom, Sweden, Switzerland, Spain, Russian Federation, Spain, Germany, Italy, France, Austria, Japan, Korea, India, South Africa, Brazil, Australia, and UAE.
Submarine Communication cables are used by SWIFT for transmitting data. The messaging network is run from three data centers, situated in the United States, Netherlands, and Switzerland. They share data in near real time and if one data center fails, the others are able to handle the traffic of the total network. In 2009, a fourth data center was opened in Switzerland and since then European SWIFT members’ data are no more mirrored to the US data center.
SWIFT assigns a Bank Identifier Code (BIC) to each bank involved in an international transaction. The name of the banks, the city, and the country in which the branch is located can be identified by this SWIFT code. This code is also known as the SWIFT ID or ISO9362 code.
The SWIFT code can be of 8 characters or 11 characters. The first four characters signify the institute code, the next two are country code and the last two is the code for the city/location. The 11-character codes have three additional and optional characters that reflect individual branches.
SWIFT doesn’t hold any funds on its own. It simply provides the platform for communication regarding the international transaction. If someone wants to transfer an amount from her account to someone living abroad, she needs to visit her bank to initiate a SWIFT transaction. In order to initiate the process, she must have the account details as well as the SWIFT code of the destination bank. Once she registers the request her bank will send a SWIFT message for transferring the payment to the specific account through the SWIFT network. Upon receiving the SWIFT message about the incoming payment, the receiving bank will clear and credit the money to that specific account.
Prior to the formation of SWIFT, all the messages regarding the international fund transfers were transmitted through Telex. However, it had several issues including low speed, security issues, and free message format.
References for Society for Worldwide Interbank Financial Communication
Academic Research on Society for Worldwide Interbank Financial Transactions (SWIFT)
A historical analysis of core financial services infrastructure: society for worldwide interbank financial telecommunications (SWIFT), Scott, S. V., & Zachariadis, M. (2010). This article provides a historical analysis of the Society for Worldwide Interbank Financial Telecommunications. The article traces its origins and analyzes how these historical origins influence the design and the current state of SWIFT. The SWIFT was started as closed “society” to reduce errors and increase efficiency in inter-bank payments and later it grew into an unexpected network phenomenon. It became so successful that it has been accused of being an installed base stifling innovation. It has introduced new categories of membership to eliminate the concerns about its bank dominated governance.
Origins and development of SWIFT, 1973–2009, Scott, S. V., & Zachariadis, M. (2012). Business History, 54(3), 462-482.
SWIFT: a fast method to facilitate international financial transactions, Baker, J. C., & Byler, E. U. (1983). Journal of World Trade, 17(5), 458-465. This paper examines the impact of SWIFT on international financial transfer. The paper states, within five years of its operation the SWIFT has already had a great impact on international banking and aims to investigate that impact.
SWIFT and the vulnerability of transatlantic data transfers, Fuster, G. G., De Hert, P., & Gutwirth, S. (2008). International Review of Law, Computers & Technology, 22(1-2), 191-202. This paper analyzes the developments of the “SWIFT affair”, especially from the perspective of European data protection. The paper discusses how the facts were rendered public and analyze how the different European data protection authorities and bodies reacted to it. It offers an assessment of the ‘solutions’ discussed and implemented. The paper argues that one of the main unresolved challenges of EU data protection is to develop a consistent approach to deal with transatlantic data transfers.
The SWIFT affair and the global politics of European security, De Goede, M. (2012). JCMS: Journal of Common Market Studies, 50(2), 214-230. The paper analyzes the “SWIFT affair” and argues the current changes in European security governing can be well understood through this lens. It analyzes the ad hoc innovations developed in the European Union as a reaction to the institutional challenges posed by the deployment of private, commercial data for security. The paper argues the EU has got a chance to establish itself as a normative power that promotes values of privacy and data protection. The paper opines the EU’s own security practices need urgent critical attention in the context of the development of a European Terrorism Financing Tracking System and the implementation of risk-based and data-led internal security measures.
Shadowy figures: tracking illicit financial transactions in the murky world of digital currencies, peer-to-peer networks, and mobile device payments, Villasenor, J., Monk, C., & Bronk, C. (2011). This paper discusses the technical and organizational challenges of detecting and monitoring the financial transactions conducted through digital currencies, virtual currencies, virtual goods, and mobile phone-based money transfer system. The paper opines a combination of self-regulation, government-industry collaboration and technological and cultural changes within the government agencies is needed to mitigate this challenge.
The dark side of cyber finance, Bronk, C., Monk, C., & Villasenor, J. (2012). Survival, 54(2), 129-142. This paper discusses how the advancement of digital technology is facilitating and creating newer ways of unlawful financial transactions and posing threat. The paper argues that the governments and industry need to be as fast paced as the criminals and terrorists in adopting new technologies and only then these threats can be met.
Money laundering—a global obstacle, Buchanan, B. (2004). Research in International Business and Finance, 18(1), 115-127. This paper discusses the issue of money laundering and presents a clinical examination of the process. It discusses the international extent of the issue and assesses the global measures that have been taken in recent years to prohibit money laundering.
Risk Allocation in International Interbank Electronic Fund Transfers: CHIPS & SWIFT, Lingl, H. F. (1981). Harv. Int’l. LJ, 22, 621. This paper discusses the risk allocation in the two systems used for international interbank electronic fund transfer, namely the Clearing House Interbank Payments System (CHIPS) and Society for Worldwide Interbank Financial Telecommunication (SWIFT).
New SWIFT rules on the liability of financial institutions for interest losses caused by delay in international fund transfers, Ambrosia, D. W. (1980). Cornell Int’l LJ, 13, 311. This paper analyzes the SWIFT rules regarding the liability of financial interest losses that are caused by a delay in international fund transfers.