In our day to day life we encounter a number of terms and awareness of these basic terms, enable us to live better life and achieve higher goals in our life. Today we will discuss about such one term named as the SWIFT Code.
Introduction
The SWIFT code is a financial messaging system that uniquely identifies a bank or it’s branch and enable smooth international wire transfers across the World. Generally, it is an 8- digit or 11- digit character code. The SWIFT stands for “Society for Worldwide Interbank Financial Telecommunication”. It is also known as BIC code or ISO 9362. Some of the examples are as follows:
1. AXISINBBXXX (for Axis Bank).
2. BARBINBBXXX (for Bank of Baroda Bank)
3. HDFCINBBXXX (for HDFC Bank)
4. ICICINBBXXX (for ICICI Bank)
5. SBININBBXXX (for SBI Bank)
Note that, “XXX” in above code will be replaced with the specific branch code, they are just specimen for basic understanding.
Historical Background
Although Telex technology was used as cross-border transactions but during 1970s, a lack was felt for cross-border payments system which will fast, secure and reliable apart from present Telex technology; this need was solved by the introduction of SWIFT. In 1973, fifteen countries and their 239 banks got together to solve this common problem and addressed the question, “how to communicate about cross-border payments”. They formed a cooperative entity, “the Society for Worldwide Interbank Financial Telecommunication”, headquartered in Belgium and introduced SWIFT system for cross-border transactions. This system became a global financial messaging service and a common language for international financial messaging.
SWIFT went live with its messaging services in 1977 by replacing the Telex technology of that time. Prior to SWIFT, the only reliable means of message confirmation for international funds transfer was Telex. It was discontinued due to a range of issues such as low speed, security concerns, etc. SWIFT was then in widespread use, and rapidly became the reliable, trusted global partner for institutions all around the world. The main components of the original services included:-
1. A Messaging Platform,
2. A Computer System to validate and route messages, and
3. A set of message standards.
Under SWIFT system standards were developed to allow for a common understanding of the data across linguistic and systems boundaries, that will permit the seamless exchange across the borders.
In 1983, the connection with first central banks reinforced SWIFT’s position as the common link between all parties in the financial industry. Another landmark extension was happened in 1987, when SWIFT extended it’s messaging services and user base, and entered into the securities market. In parallel SWIFT launched a range of complementary services to supplement it’s core messaging offer, and in 1988 SWIFT set up a dedicated customer support team to better assist and respond to users.
In 1992 SWIFT’s Interbank File Transfer went live. In next year 1993, SWIFT’S UNIX interface system launched which improves it’s processing capabilities. By the year 2009, SWIFT carried 3.76 billion messages per year and had truly established itself as the global backbone of the financial industry. In this way SWIFT entered into regional integration projects such as SEPA and TARGET2 in Europe, and opened offices in Brazil, Mumbai, Dubai and Johannesburg. New offices continue to expand it’s global presence. In 2014 SWIFT launched it’s first ever truly local joint venture -Swift India, delivering the benefits of renowned financial messaging services for domestic traffic of Indian user community. In 2014, a new operating centre in Switzerland was added into SWIFT system.
SWIFT is controlled by the central banks of the G10 countries, the European Central Bank, and the National Bank of Belgium. The Group of Ten (G10) is made up of eleven industrial countries namely - Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States; they consult and co-operate on economic, monetary and financial matters. In 2022, the US and the European Commission has excluded several Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system to counter Russia’s war over Ukraine.
SWIFT hosts an annual conference named -SIBOS (SWIFT International Banking Operations Seminar). It was first successfully held in 1978 at Brussels, the capital of Belgium. It aims to bring together thousands of experts, business leaders and decision makers from the financial ecosystem to address ongoing and upcoming challenges. It's recent edition was held at Toronto, Canada (North America) between 18 September, 2023 to 21 September, 2023. It's upcoming edition will planned to be held at Frankfurt, Germany (Europe) between 29 September, 2024 to 2 October, 2024.
Why SWIFT Code matters in our Digital World today?
As we clearly understand that SWIFT code serves as a unique identifier for financial institutions during international (monetary) transactions. It’s importance or need can be understood by following points:
1. International Monetary Transfers: SWIFT codes are used for secure and efficient cross-border wire transfers. When you send money from one country to another, the SWIFT code ensures that the funds reach the correct bank and branch. For example, to receive Google AdSense payments, you’ll need to provide your bank account information, including the SWIFT code.
2. Standardization: The code standardizes communication between banks globally. It consists of 8 or 11 alphanumeric characters, providing essential information about the recipient bank.
3. Bank Identification: The first four letters represent the bank, the next two letters denote the country, the next two denotes the location and the last three letters (optional) specify the branch. For example, “HDFCINBBXXX” corresponds to HDFC Bank in India.
4. Backbone of Global Economy: At present, SWIFT system is adopted everywhere and that make it a spinal cord of present financial world. Interruption in it’s services affect normal financial services. For example, when US and European Union put sanctions on Russian amid Russia-Ukraine War in 2022, SWIFT excluded many Russian banks from its platform; this leads failure of international financial transactions of these banks and affect Russian trade as well as local people’s also suffers who use International Cards like Visa, MasterCard, etc.
General Breakdown of SWIFT Code
The SWIFT code is 8 or 11 characters, and it will express follow things is a coded form:
1. First 4 letters: They are institution name code or bank name code.
2. Next 2 letters: These two letters just after first four denotes country code assigned by ISO 3166-1 which are the alpha-2 country code. Note that, Republic of Kosovo does not have an ISO 3166-1 country code, due to this exceptionally, SWIFT has assigned the code XK to Republic of Kosovo.
3. Next 2 letters or digits: The location code.
4. Next 3 letters or digits: They are the branch code which is optional (‘XXX’) for primary office. So, where an eight digit code is given, it may be assumed that it refers to the primary office.
SWIFT Messages Process
As we understood now that SWIFT message is a standardized format used by financial institutions to communicate securely during international transactions. Let we know how it works by following steps:-
1. Structure: Each SWIFT message consists of blocks like Block 1 for Header which contains sender and receiver’s information; Block 4 for Text, etc.
2. Routing: Here the sender’s bank sends the SWIFT message to the recipient’s bank and this message may pass through intermediary banks.
3. Processing: In this step, beneficiary bank processes the message, crediting the recipient’s account.
4. Confirmation: In this final step, beneficiary bank sends an acknowledgment (e.g., MT900) to the correspondent bank and confirming receipt.
Some Examples of SWIFT Message Codes
SWIFT messages play a crucial role in financial transactions, and they come in various types. Each message type serves a specific purpose, ensuring standardized communication in the global financial network. Let we see some common codes:
1. MT 101 - Request for Transfer.
2. MT 102 - Multiple Customer Credit Transfer.
3. MT 103 - Single Customer Credit Transfer.
4. MT 110 - Advice of Cheque(s).
5. MT 195 – Queries.
6. MT 199 - Free Format Message.
The Bans of SWIFT on a Bank or Country
Well, we know that SWIFT provide a cross-border transactions system with its other products and services. It is very important to understand that in current scenario this system is widespread and fulfilling the global financial needs. Banning or sanctioning a bank from SWIFT will technically restrict the bank from executing its and its customers’ financial transactions with foreigners, meeting obligations, receiving payment for exports, or providing short-term credit for imports. This can paralyze all sectors of the economy engaged in international trade and finance. For example, amid Russia-Ukraine War, in 2022, the US and the European Commission has excluded several Russian banks from the SWIFT messaging system to counter Russia’s war over Ukraine. This impacted, Russia’s domestic payment system at the extent that all transactions with any card issued by the major credit card networks (like VISA, Amex, etc.) are inoperative as all operate through SWIFT. So, bans or sanctions on a bank can impact a country or more specifically customer’s of the banks and the level of impact will be high risks for those countries that have broader global economic trade.
Alternatives of SWIFT
Following are the some alternative of the SWIFT Message System but none of the following alternative is used as much as SWIFT. Mostly these alternatives are just restricted within their parents country or within a specified group of country. These alternatives are as follows:
1. SPFS (System for Transfer of Financial Messages) -Russian, developed by the Central Bank of Russia.
2. CIPS (Cross-Border Interbank Payment System) -China.
3. UPI (Unified Payments Interface) -India.
4. ACU (Asian Clearing Union) -Group of Asian Countries.
5. Ripple – an financial technology companies, which has been offering its platform based on inter-ledger protocol as an alternative.
6. Crypto currencies or Blockchain Technology.
Is SWIFT code will change after each transaction?
No, the SWIFT code (or BIC code) remains constant for a specific bank or branch. It doesn’t change after each payment. When you initiate an international transfer, you use the same SWIFT code for the recipient bank. However, other details (such as account numbers, amounts, and transaction references) vary with each payment. So, in short, a SWIFT code is same for the same branch but change with other branches of the same bank.
Is SWIFT code remains same for saving and current accounts?
Yes, the SWIFT code (or the BIC code) remains the same regardless of whether it’s a savings account or a current account. The SWIFT code uniquely identifies the bank and its branch, ensuring accurate routing for international transactions. So, it remains same for saving and current accounts of the same branch of the bank but it will change for other branches, for example – if you have saving account in Branch A and current account in Branch B of the same bank then SWIFT code for both accounts are different as of their branches.
How to ensure Correct SWIFT Code?
Before making a payment, it’s essential to verify the SWIFT code to ensure accuracy and authenticity of the transaction. Here are some steps you can take:
1. SWIFT Code Checker Tool: One can validate his bank account SWIFT code by using online tools like the SWIFT Code Checker. Backed with general banking data these tools work as verifiers. Generally, you have to enter the code and it will confirm its validity based on a comprehensive database of SWIFT codes.
2. Cross-Check with Bank: For 100% accuracy people always cross-check the SWIFT code and other details with their bank or the recipient. However, it is traditional method and still people use it, specially when it is their first time. Remember, accurate SWIFT codes are crucial for successful international transactions.
What if I enter wrong SWIFT code?
If you enter an incorrect or non-existent SWIFT code, the bank should reverse the payment and return your money; and this will lead delaying of your payment. Remember, acting promptly increases the chances of resolving the issue successfully. So, if you’ve mistakenly used an incorrect SWIFT code for an international payment, follow these steps to get your payment on time or as early as possible :
1. Contact Your Bank: Immediately notify your bank about the error. They can help you trace the payment and take necessary actions.
2. Request a Recall: If the funds haven’t reached the recipient yet, your bank can recall the payment. This process involves coordination with the beneficiary bank.
3. Provide Correct Details: Ensure you have the correct SWIFT code from the recipient. Double-check other details like account numbers and beneficiary names.
4. Document Everything: Keep records of your communication with the bank, including dates, times, and names of bank representatives.
|||Points to be Remember|||
1. Remember, always verify the SWIFT code with your bank to avoid errors in international transactions.
2. The SWIFT code (or the BIC code) remains the same regardless of whether it’s a savings account or a current account of the same branch.
3. The SWIFT code (or BIC code) remains constant for a specific bank branch.
4. Iran and North Korea are out of the SWIFT platform.
5. Remember, acting promptly increases the chances of resolving the issue successfully.
Bibliography
1. V. Scott, Susan. “The Society for Worldwide Interbank Financial Telecommunication (SWIFT): Cooperative governance for network innovation, standards, and community (Global Institutions)”. Routledge Publishers. English. 21 October, 2013.
[ISBN10 – 0415631645 /ISBN13 - 978-0415631648]
2. SWIFT. “Swift History”. The Society for Worldwide Interbank Financial Telecommunications. [https://www.swift.com/about-us/history]
3. Andrybak. “ISO 9362”. Wikipedia. 2nd June, 2024.
[https://en.m.wikipedia.org/w/index.php?title=ISO_9362&diffonly=true]
4. SIBOS. “Programme”. SWIFT International Banking Operations Seminar. [https://www.sibos.com/conference-programme]
5. Hutton, Robert & Ian, Wishart. “U.K. wants EU to Block Russia from SWIFT Banking Network “. Bloomberg News. 30 August, 2014.
[https://www.bloomberg.com/news/articles/2014-08-29/u-k-wants-eu-to-block-russia-from-swift-banking-network]
6. European Union. “Join Statement on further restrictive economic measures “. EU. Brussels. 26 February, 2022.
[https://ec.europa.eu/commission/presscorner/api/files/document/print/en/statement_22_1423/STATEMENT_22_1423_EN.pdf]
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