SWIFT stands for Society for Worldwide Interbank Financial Telecommunication. It is a global messaging network that enables financial institutions to securely and reliably communicate with each other to transfer money and other financial messages.
In 1973, SWIFT was officially founded as a cooperative society in Brussels, Belgium, with 239 member banks from 15 countries. The network started with the exchange of messages related to foreign exchange transactions but quickly expanded to cover other financial transactions such as the money market, derivatives, and trade finance.
SWIFT provides a standardized and secure communication platform for banks, financial institutions, and corporations to transfer money and other financial data across borders. The network allows banks to send and receive information about financial transactions in a standardized format, reducing the risk of errors and fraud, and improving the speed and efficiency of transactions.
To use SWIFT, a financial institution must become a member and have access to the network. Once a member, a bank can send and receive SWIFT messages to and from other member banks around the world.
How does the SWIFT payment system work?
The SWIFT payment system is a messaging network used by banks and financial institutions around the world to securely exchange information and transfer money between accounts.
SWIFT assigns each financial institution a unique code of eight or eleven characters. This code is known as the SWIFT code, ISO-9362 code, or BIC code. It includes the institution code, the country code, the location code (or city code), and an optional branch code used to identify individual branches.
When a payment is initiated, the sender's bank sends a payment message to the SWIFT network, which then forwards the message to the recipient's bank. The payment message contains all the relevant details of the transaction, such as the sender and recipient's account numbers, the amount to be transferred, and any other necessary information.
For instance, if you want to pay a contractor or an employee living in another country, the unique SWIFT code enables you to make payments easily. Once the employee’s unique code is submitted, a message is sent to the employee’s bank and the money gets disbursed.
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What is the SWIFT code?
A SWIFT code, also known as a Bank Identifier Code (BIC), is a unique identification code assigned to banks and financial institutions worldwide. The code is used to identify a particular bank when making international money transfers between banks.
The SWIFT code is a combination of letters and numbers, usually consisting of 8 to 11 characters. The code is used to identify the bank's location, name, and branch. The first 4 characters of the code represent the bank's name or institution code, while the following two characters represent the country code. The last two characters represent the location code, which could be either the bank's head office or a specific branch location.
SWIFT codes are essential for international wire transfers, ensuring that the funds are transferred to the correct bank and account. They are widely used by banks and financial institutions worldwide and are recognized by most financial institutions, making them an important part of the global financial system.
Who uses SWIFT?
Although SWIFT users began as banks, many types of financial institutions now use SWIFT for the majority of their transactions. To use SWIFT, an institution must be a SWIFT member. Those eligible to join SWIFT include:
- Payment, securities and treasury market infrastructures
- Investment managers
- Fund participants
- Matching utilities
- Clearing houses
All of these types of organizations need secure and reliable methods of transferring money between international banks, and SWIFT allows them to do just that. Also, organizations with global teams can utilize SWIFT to pay employees and contractors abroad.
Simplify international payments with Skuad
SWIFT is a revolutionary and reliable tool to transfer money across borders, but it’s not the right choice for every business. Without an established legal entity abroad, companies cannot use SWIFT wire transfers to manage global payroll.
Working with Skuad will help you scale your business globally– the right way. Skuad helps companies manage international payroll for employees and contractors in an easy, all-in-one platform. With Skuad, you can hire and onboard international employees quickly and without having a legal entity abroad.
To know more about Skuad, book a demo!