SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. It is a messaging network which is used to securely send and receive messages and financial transactions.
There are more than 11,000 global SWIFT member institutions in more than 200 countries, and it is the largest network for international payments and settlements in the world. It is governed by the G-10 central banks, which include Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the UK, and the US.
How does SWIFT work?
SWIFT itself does not hold any funds, or manage any accounts. It simply acts as the secure communication system between banks and financial institutions including foreign exchanges, securities dealers, brokerage institutes, and asset management corporations.
To ensure accurate and streamlined transfers, businesses will be identified using a SWIFT code, a unique ID which relates to each bank’s name, country, city, and branch. To make a transfer using SWIFT, you’ll need the name of the recipient, their address, the name and address of their bank, the IBAN number of their account, and also the SWIFT code for the destination bank.
What are Nostro and Vostro accounts?
The terms Nostro and Vostro are used to describe the same bank account, to differentiate between two different sets of accounting records held by two banks. When one bank holds another bank’s money on its deposit, for example during an international transaction, the words are used so that the banks understand whose money belongs to whom.
Nostro comes from the Latin for “ours”, and Vostro comes from the Latin for “yours”. Nostro therefore means “our” money, which is on deposit at a different bank, while Vostro means “your” money which is on deposit at the bank.
What is a SWIFT code?
To make a SWIFT transfer, a business will need a SWIFT code, which corresponds to each member of the network. This code is also known as the Bank Identifier Code (BIC), and it will have either 8 or 11 characters.
The first 1-4 characters will be the code of the institution. 5-6 will relate to the country, 7-8 the city, and 9-11 the individual branch. This information is public record, so that any individual can trace any bank by their unique identifier.
How important is SWIFT to global finance?
The benefits of SWIFT include accountability, accessibility, transparency, and popularity, so it’s no wonder that SWIFT is so critical to global financial operations. SWIFT has become crucial for international businesses in order to make international payments quickly and accurately.
As the main interbank messaging service in the world for financial institutions, SWIFT facilitates $150 trillion in transactions every year, working with more than 11,000 member institutions.
Is SWIFT cost-effective and quick?
International payments via the SWIFT payment system usually take between 1 and 4 days, depending on the countries involved, the timezones, and the different processes in place for anti-fraud and money laundering. There are transaction fees involved in using SWIFT to transfer money, usually dependent on currency conversions.