SWIFT is the acronym for Society for World Interbank Financial Telecommunication, that is, Society for International Interbank Financial Communications.
It is a cooperative group, founded in Brussels in 1973, that helped establish a common language for financial transactions, a shared data processing system, and a global telecommunications network.
The fundamental operating procedures and rules for defining responsibilities were established in 1975 so that the first SWIFT message could be sent in 1977. As a result, SWIFT is one of the essential infrastructures of modern international finance; in fact, the SWIFT network has become an effective tool for the integration of services such as interbank payments, investments, transfers, foreign trade and remittance checks.
This solution processes more than 10 million messages daily between 8,000 financial institutions located in more than 200 countries, with availability 24 hours a day, 7 days a week. However, in order to use SWIFT's services, you must join its user community.
The SWIFT infrastructure groups together the vast majority of the world's banks, enabling fast and secure communication between them. However, as not all financial entities have exchanged accounts, they work through correspondent banks, which act as intermediaries in different states and with the currency of the country where they are located.
The SWIFT code of a bank consists of 8 or 11 alphanumeric digits that contain the identification of the code of the country in which the entity is located, the code of the bank itself and a series of additional data, such as the location or type of branch .
In order to carry out a SWIFT operation, the following participants are required:
1. Originator: It is the importer or payer, who gives instructions to his bank requesting the issuance of the transfer charged to his account.
2. Issuing bank: Receives instructions from the originator, checks them and, if deemed appropriate, issues the transfer through the SWIFT interbank communication system.
3. Correspondent bank: Appears when the transfer is made in a currency other than the country of the issuing bank. That is, when the intervention of a bank located in the country of the same currency as the transfer is necessary.
4. Paying bank: It is the entity in which the beneficiary of the payment has the account where the transfer money arrives.
5. Beneficiary: Collector or exporter, is the one who receives the funds in his account.
Advantages and disadvantages
Advantages of the SWIFT procedure include:
- Security: Messages are encrypted so that the payment order cannot be violated.
- Automation: Messages are delivered through an international SWIFT network.
- Speed: In a matter of seconds messages are transmitted to anywhere in the world.
- Standardization: To facilitate communication and ensure the reliability of the message.
- Irreversible: Once carried out, no one can paralyze it, not even the payer himself.
- Low cost: Transfer fees are small, similar to checks.
Similarly, among the major drawbacks of this methodology, it stands out that it does not cover the commercial risk of collection. Moreover, in the cases in which the merchandise is delivered before making the payment, it depends on the seriousness of the payer to meet the capital payment deadline.