What are SWIFT money transfers and how do they work?
Who are SWIFT?
A few years ago someone wanted to send me a payment for a subscription website that I was running, and he asked me for my SWIFT code. I had never heard of a SWIFT code, and had no idea how to get one.
So I did some research and I learned that SWIFT (www.swift.com) is an organization co-operatively owned by many financial institutions and basedin Belgium. SWIFT has many functions, in particular supplying secure, standardized interface software to financial institutions around the world.
In 1973, banks still communicated via telex — not very secure, minimum standards and not automated either. Imagine receiving 10,000 telexes a day. So, 239 banks from 15 countries formed a cooperative to “automate the telex”. They called it the Society for Worldwide Interbank Financial Telecommunication (no “s” at the end). S.W.I.F.T.
SWIFT are now one of the prime network providers for movement of cash between banks (the average daily value of SWIFT payment messages today is over $5 trillion!), and for many other types of transactions. SWIFT provide a financial EDI infrastructure, offering Electronic Funds Transfer (EFT) and Electronic Trade Confirmation (ETC), allowing the banks and other parties involved, the message partners, to have Straight Through Processing (STP). The idea is to substantially reduce the time taken to process a transaction from a few days (as is only possible conducting the transaction manually), to within a day.
Bottom line: the reason money can be moved so quickly from one financial institution to another today, is because of SWIFT. They key to all this? A numerical code called a SWIFT or BIC code.
SWIFT Codes or BIC Codes
One of SWIFT’s crucial functions is to allocate SWIFT codes (which have now been renamed BIC codes). The SWIFT or BIC code is a unique alphanumerical identifier that can be used to identify any financial institution worldwide. This includes brokerage firms, clearing houses, investment managers, stock exchanges, securities deposit organizations and banks. Every bank has a different code, and they use it whenever money is wired from one bank to another. So if you need to wire money to any bank, it helps if you know the SWIFT code, which you can get from the receiving bank. Of course you’ll also need the account number that you are sending to.
A SWIFT Code consists of either eight or 11 upper case alphanumeric characters. If it has eight characters it is probably an HQ or primary financial institution. If it has 11, it’s probably a branch.
- The first four characters are the bank code (usually the first letters of the bank’s name).
- The next two characters tell you the ISO country code.
- Then come two characters that identify the bank’s location.
- The last three characters (which are optional) identify a specific branch office of the bank or other financial institution.
For example, Bank of The Philippine Islands has the SWIFT code BOPIPHMM, the MM is for Metro Manila.
Nowadays, however, they call it a BIC (Banking Identification Code). So if you need to wire money to someone’s bank account, get their BIC code and account number. Keep in mind that o ne financial organisation can have a number of different BICs.
These different BICs may be for different services, and separate BICs are used for test and live, as a precaution against accidentally publishing test feeds into production.