How does SWIFT network work?

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a global network that enables financial institutions to securely exchange information about financial transactions. SWIFT assigns unique Business Identifier Codes (BICs), also known as SWIFT codes, to each member institution. To send information through the network, financial institutions must have corresponding accounts with each other.

Each SWIFT member pays joining fees and annual support fees, as well as per-message fees that vary based on message type and volume. Although SWIFT does not facilitate the direct transfer of funds, it allows financial institutions to send payment orders to each other. A payment order is a financial instrument instructing a bank or financial institution to transfer funds to another party.

Advantages of the SWIFT Network

• SWIFT assumes financial responsibility for message delivery and ensures the secure transmission of information.
• SWIFT uses standardized messaging formats and software, facilitating global monetary information exchange and adherence to reference data guidelines. Standardized messages ensure clear and machine-readable information, promoting automation, reducing costs, and mitigating risks.
• SWIFT provides a reliable and secure network for the exchange of financial information.

Ways to Connect to the SWIFT Network

• Direct Connectivity, financial institutions can connect directly to the SWIFT network by applying to SWIFT and obtaining their own BIC code. This option offers direct access to the secure SWIFT network, enabling the exchange of information and payment orders with other members. Direct connectivity requires the use of specialized software developed by SWIFT.
• Indirect Connectivity, this option allows financial institutions to connect to the SWIFT network through a third-party provider. While indirect connectivity may be more cost-effective for smaller institutions, it typically involves higher per-message fees compared to direct connectivity.

Features of Direct Connectivity

• Direct connectivity involves working directly with SWIFT as the sole provider.
• The database can be tailored to the specific needs of the customer.
• Direct connectivity offers a higher level of security for data flow.
• Compared to indirect connectivity, direct connectivity often results in lower per-message costs due to the absence of intermediaries.

Indirect connectivity

Indirect connectivity, also known as a bureau service or shared connectivity, is a cost-effective way for financial institutions to send SWIFT messages without needing to implement the required software in-house. This is achieved by utilizing the BIC code of another financial institution that is already a SWIFT member.

There are two main ways to establish indirect connectivity:

• SWIFT authorizes certain organizations to act as bureaus, providing affiliates with the necessary infrastructure to send SWIFT messages.
• A financial institution can directly partner with a SWIFT member, using their BIC code for message transmission. This can be done either through the financial institution’s own software interface or by submitting payment orders to the SWIFT member for execution. In such cases, an agency agreement is typically established between the two parties.

In both scenarios, the financial institution benefits from streamlined SWIFT access without the burden of maintaining their own dedicated infrastructure.

International Fintech Business (IFB) can help you to connect to the SWIFT network. Our experts can help answer any questions you may have. Contact us today!