Full-Form of SWIFT
SWIFT’s full form is Society for World Wide Inter-Bank Financial Telecommunication. SWIFT is a platform that provides nationwide financial institutions a secured, standardized, and an encrypted network in the reliable environment for the transfer of various important information which can be from one branch of a financial institutionFinancial InstitutionFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. read more to another branch or from one financial institution to another financial institution and it also provides software for maintaining the various information.
History
- Before the Society for World Wide Inter-Bank Financial Telecommunication (SWIFT), the only message confirmation for international fund’s reliable means was Telax. However, at that time, there were various issues associated with Telax, which include slow speed, lack of standardization, security problems, etc. Due to this, something new was much required with standardization.
- So, the society for worldwide interbank financial telecommunication was found in the year 1973 in Brussels. It was inaugurated by the CEO Carl Reuterskiöld and initially working of the SWIFT under the leadership of him only. At its initial stage only, approximately two hundred and forty banks from so many countries supported it.
- Gradually, it started establishing common standards for financial transactions and a shared and secured financial information network with a worldwide communication data processing system. However, its fundamental operating procedures and rules data were further established after 2 years in 1975, and after 2 further years, a message was sent in 1977. In 1979, SWIFT‘s first united states operating center was established by Governor John N Dalton of Virginia.
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How Does it Work?
Whenever there is a banking transaction, SWIFT assigned a unified and standardized code to the financial institution entering into the transaction, which is either 8 digit code or the 11 digit code. The code has 3 interchangeable terms that include the swift code, the bank code, and the SWIFT ID or ISO Code.
Let’s suppose a person has a bank account in one bank, and he needs to transfer the money to another person having a bank account in another bank in another country. In that case, the first person is required to walk into his banks with the account number of another person and its unique SWIFT code. The other bank will send a SWIFT message for a payment transfer via a secured network. Once the other bank receives the SWIFT message of incoming payment, it will clear the credit into another person’s bank account. This is how it works.
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Functions
Society for World Wide Inter-Bank Financial Telecommunication (SWIFT) functions worldwide with its reliable, smooth, secured data transmission network among the globe’s financial institutions. The functions of Society for World Wide Inter-Bank Financial Telecommunication are discussed as follows:
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- SWIFT does not help in transferring the funds; rather, it provides passcodes and payment orders to the financial institutions that need to be settled by the corresponding accounts that institutions have with each other.
- It provides a network where the data can be transferred from one bank’s branch to another bank’s branch. Hence it is a financial messaging network.
- It makes an exchange of information reliably and securely through the worldwide established transmission and telecommunication network.
- The majority of interbank international transaction uses the SWIFT, which provides a turn-key solution for its member financial institutions and banks. It facilitates the connectivity to SWIFT networks in terms of the transfer of relevant information in all the international transactions.
- Also, a SWIFT code is an alphabetical number containing information identifying the banks and the branches based on a standardized format.
Importance
The importance of Society for World Wide Inter-Bank Financial Telecommunication is discussed as follows:
- SWIFT ensures the faster transfer of information from one bank to another bank regardless of whether both the banks are in the same country or not.
- Unlike other data transmission networks, SWIFT provides a secure network. It uses encryption and decryption technology for the transfer of information from one financial institution to another.
- SWIFT uses SWIFT codes, which help in identifying the financial institution because SWIFT provides a unified and independent code to each member institution. Encryption is added when the message is sent, which secures the message’s transfer, and it is then decrypted when the message is reached to the receiver.
- It provides the highest level of integrity and confidentiality to the user, which is proved by its world renounce.
Difference between SWIFT and IBAN
The following are the differences between the SWIFT and the IBAN:
- SWIFT is the short form of the society for worldwide interbank financial telecommunication, while IBAN is the short form of the International bank account number.
- SWIFT codes provide the identity of specific banks entering into specific transactions while, on the other hand, IBAN identifies the specific bank account in international transactions. Hence undoubtedly, both are inevitable for a smooth running of international transactions.
- IBAN easily identifies the country in which the bank is located between which the transaction is conducted, whereas the SWIFT system attempts to provide and standardize international banking transactions through IBAN.
- Typically, the United States economic network doesn’t require IBAN for its financial institutions functioning. Rather, it uses a SWIFT code, like bank identification codesBank Identification CodesBIC is an abbreviation for Bank Identifier Code, which is also known as SWIFT ID, SWIFT-BIC, or SWIFT code. It is a unique alpha-numerical identification code approved by the International Organization for Standardization that is typically required by digital banking applications when transferring money between two member banks of the swift network.read more (BIC) for secured data transmission.
Conclusion
The society for worldwide interbank financial telecommunication is a well-developed system having its operating center in various countries with a membership of almost all the financial institutions. There is smooth functionality of sending SWIFT codes between the banks ensures that when the transactions are authorized to form the end customers, then only the payment is cleared and credited. Thus, SWIFT is a very successful platform for the quick as well as the smooth functioning of financial institutionsFunctioning Of Financial InstitutionsFinancial Institutions are dedicated towards the growth of individual's funds and also contribute to the national economy. They're governed by various authorities to protect the investor's funds and keep a check on malafide practices. read more, including banks that are established worldwide.
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