SWIFT
Banks used the Telex system to transfer any information, data, and money from one country to another, but it suffered from flaws, such as slowness and security concerns, which increased the need for banks to establish a SWIFT financial system.
The SWIFT system is a system whose idea began at the end of the sixties when world trade began to develop, and was founded in 1973 in Brussels, Belgium.
It is used in the world of financial transactions, managing instruction submissions for transfers from one country to another using a unified form. SWIFT does not hold or transfer funds but allows banks to inform it of exchanges of interest to them.
The word "SWIFT" is an English abbreviation for "Society for Worldwide Interbank Financial Telecommunication", which means Association for Global Interbank Interbank Interbank Telecommunication.
The SWIFT Financial System provides a secure network that allows more than 11,000 financial institutions in more than 200 different countries to send and receive information and messages about the financial transactions of banks and financial institutions internationally.
The SWIFT system is not limited to banks, there are a group of financial institutions that need the SWIFT system, such as brokerage institutions and trading houses, securities dealers, asset management companies, cash deposit institutions, exchange companies, participants in treasury markets, and their service providers, foreign exchange companies and financial intermediaries.
Each financial institution is assigned a special code consisting of 8 characters if it indicates the bank's main branch, or 11 characters if it indicates one of the bank's branches.
The first four characters are the symbol of the financial institution's name.
The following two letters are the symbol of the country to which the institution belongs.
The following two letters are the symbol of the location or city of the institution where the headquarters are located.
The last three characters: are optional and used by organizations to assign symbols to their branches.
This code is known as the Bank Identifier Code or BIC.
Through this code, it is possible to quickly identify the bank and send the data securely while providing all the details in a clear and transparent way.
To illustrate how SWIFT works, let's say that someone in Saudi Arabia wants to send money to a friend in Italy, so he goes to the local bank and tells him that he wants to transfer the amount of 500 euros to a friend in Italy via SWIFT, and the bank converts the request to a SWIFT format called "SWIFT message", which includes deducting the amount of 500 euros from the person's account, and then sends it through the SWIFT global system to the bank of the person in Italy, informing him that a transfer of 500 euros is on its way. To the owner of this account, thereby depositing the amount into the customer's account.
The SWIFT system remains just a messaging system, so SWIFT does not act with money or securities and does not manage accounts for clients, SWIFT acts as an intermediary between financial institutions.
Advantages of the SWIFT Financial System:
1. Transparency, SWIFT payments detail the amounts involved in the transaction, the route you take between banks, details of all fees, the nature of payment, and many other details.
2. Traceability, since SWIFT separates the transaction path between banks and the amount of funds involved, it provides clear and recognized proof of payment, and allows all parties involved to track the transaction and understand the costs and the time period involved for it.
3. Consistency, due to the consistency of how messages are organized, it is easy to decipher payment information regardless of language or country barriers.
Disadvantages of the SWIFT Financial System:
1. The procedure of transferring money takes a long time, as standard SWIFT transfers are very slow, and although slow, they have the choice of paid acceleration, which significantly increases their capabilities.
2. The high cost of messages transmitted through SWIFT to financial institutions, and in order for institutions to cover these costs they have to impose other costs on the customer wishing to transfer outside the country, which is defined as a percentage of the amount of transfer, and these percentages may be set differently depending on each country.
3. The existence of costs for what are known as intermediary banks, the fees of the intermediary bank vary depending on the currency and other fixed fees imposed, which can cost up to several tens or several hundred euros.
Finally, we offer you links related to the SWIFT system:
• YouTube Video - Argaam
https://www.youtube.com/watch?v=Y4ec1juID-Y&ab_channel=%D8%A3%D8%B1%D9%82%D8%A7%D9%85-Argaam
Sources:
https://www.moneymover.com/about/blog/what-are-swift-payments/
https://www.almrsal.com/post/1166591
Prepared by:
Shahla Alotaibi
Raghad Alnafisah
Leen Alsulaiman