What Is The SWIFT System?

What Is The SWIFT System?

The US and the European Union partially expel Russia from the SWIFT system to stop the attack on Ukraine. It is probably the sanction with the greatest economic impact that can be imposed on the country. But what is the SWIFT system? We tell you everything you need to know about this payment method and why, without it, Russian banks will not be able to make international transactions.

The disconnection of some Russian banks from the international payment platform known as the SWIFT system is one of the pressure initiatives that third countries are agreeing on to cause economic damage to Russia and dissuade its president, Vladimir Putin, from continuing with the invasion of Russia. Ukraine. In this way, Russia is partially economically isolated at the international level because all income and payments of the expelled banks are blocked, making transnational operations with entities that use the SWIFT system impossible.

What Is SWIFT System

SWIFT is the acronym for Society for World Interbank Financial Telecommunication, Society for International Interbank Financial Communications. It is an essential high-security payment system in international finance, which is used to exchange information through encrypted messaging, making the different banking movements between international entities possible and easier.

This cooperative group was founded in Brussels in 1973, thus offering the opportunity to create a common language between banks to carry out different financial movements. It currently has some 11,000 financial institutions in more than 200 countries and is run by a 25-member board. In short, it is a shared data network in which 10 million messages are processed daily, which enables international bank transfers.

Because It Is An Important SWIFT System

As we have seen, the vast majority of banks around the world belong to the SWIFT network, thus creating a fast and efficient system of communication between all of them with a common language. Each bank has a different code, which is made up of between 8 and 11 alphanumeric digits that contains:

  • Identification of the code of the country in which the entity is located.
  • Code of the same bank.
  • Additional data: location and type of branch.

In this way, with the SWIFT code you can know from where a transaction is being made.

Who Is Involved In A SWIFT Transaction

In order to carry out an operation with the SWIFT code, several key factors must be involved in the transaction. They are the following:

  • Originator: payer person or company that asks your bank to make a transfer charged to your account.
  • Issuing bank: entity that receives instructions from the payer. It is dedicated to checking the characteristics of the movement and, if it deems it appropriate, it issues the transfer through the SWIFT system.
  • Correspondent bank: it is an intermediary that appears when the movement to be carried out is made in a currency other than that of the country of the issuing bank.
  • Paying bank: this is the bank where the beneficiary of the transfer has the account where the money is received.
  • Beneficiary: the one who receives the payment in his account.

Advantages And Disadvantages Of The SWIFT System

This codified messaging system between banking entities is essential in the financial system because it has a series of advantages that few other systems can match, although it also has some drawbacks that we will mention later. Next, we show you the advantages that the SWIFT procedure offers you when carrying out any transaction:

  • Security: encrypted and codified messages so that the payment order cannot be broken.
  • Automation: messages sent through an international SWIFT network.
  • Speed: it takes just a few seconds to transmit the message to any bank in the world.
  • Standardization: simple communication that ensures the reliability of the message.
  • Irreversible: no one can stop the transaction once it has been carried out, not even the payer himself.
  • Low cost: it does not imply a high cost in commissions.

Regarding the drawbacks, the most notable is that the SWIFT system does not take care of the commercial risk of the collection. If we find ourselves in a situation where the merchandise has been delivered before the payment has been made, everything will depend on the ordering party to comply with the capital payment term.


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