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SWIFT and Money Transfers

Doron Midroni

Important note: there is no connection between SWIFT and ATMs; these are totally different processes.

At the beginning there were the Genovese and Venetian merchants and their letters of credit. Then the semaphores. Then the telegraph. Finally, the telex.

In 1973 a group of bankers sat together with a great idea on the agenda: how to automate the telex.

As result of this meeting, banks from 15 countries agreed to form a cooperative society, which would have as mission to "automate the telex", in fact to create a roadmap towards application of computer technology to payments message exchange between banks. Thus was born S.W.I.F.T. (Society for Worldwide Interbank Financial Telecommunication), in short SWIFT (always in upper-case letters).

Over the ensuing 30 years SWIFT has developed into a cornerstone of international banking activity.

There are a number of elements to the SWIFT contribution:

1. The network

The SWIFT network is available exclusively to financial institutions. It has a closed membership, which presently numbers over 7400 user banks and other types of financial institutions, in 199 countries. They use a variety of connection types, from dial up to ISDN, x25 and IP. In 2002 this network processed 1.8 billion financial messages. A peak day would see 8.8 million messages exchanged over the network. A message sent over the SWIFT network, say by a sender bank in France to a receiver bank in Brazil, will arrive at its destination, authenticated and encrypted, in a few seconds. Only a few more seconds are required to place the transferred funds in the customer account provided the receiving bank has the automated systems to support this type of function, as most do.

2. The standards

To enable service to such a huge and diverse constituency, SWIFT had to transcend language and thus was at the forefront of standardization in the financial industry. Since the SWIFT network over time developed into supporting the processing of practically any known financial business type, the standardization resulted in specialized message types using data segments, data elements, addressing codes and processing codes. Thus, a bank in Canada can receive payment instruction from Japan, for example, and the payment will be executed even though nobody at the receiving bank can read Japanese. The codification has eliminated the need for a specific language by assigning strict attributes to information, so that it always means the same thing regardless of the part of the world where it is processed. There is a strong connection between the standards specialists in the banking industry and at SWIFT, and ISO (International Standards Organization) since SWIFT standards are recognized ISO standards. In addition, there is permanent cooperation and cross pollination with other standards groups dealing with electronic data interchange (EDI), the most important of which is UN/ECE/CEFACT.

3. The reliability

Unlike a cheque (check), mailed money order, or cash, a SWIFT transaction never gets lost. Tracking, redundancy and acknowledging procedures are built into the network and in the message processing systems.

4. Privacy and security

Each SWIFT message between two banks is authenticated with a secret key known only to the two banks involved. In addition, a combination of hardware and software encrypts the already authenticated message based on the most sophisticated encryption algorithms in existence.

5. Redundancy

The architecture of the network is such that it is fully redundant and can recover quickly from any distress. This was demonstrated on 9/11, when the SWIFT network was fully available and enabled the Federal Reserve and New York banks to continue their operation despite wide swaths of lost telecom connections.

What does all this mean to Slow Travelers?

For most travelers whose trip horizons typically range from a few days to a few weeks, the existence of SWIFT is not relevant. Such travelers will carry some cash and use ATMs and travelers cheques.

When paying relatively small amounts of money, for example for a week of vacation rental, the charges applied by banks may make the use of SWIFT for the transfer of funds somewhat questionable.

But when paying for bigger transactions, such as for renting a villa for a month for five families, or when sending a down payment on the property of your dreams in Umbria, the promptness, safety and reliability of the payment executed by your bank via SWIFT will pay off. Still, as with other payment methods, the execution of the payment will be as good as the information provided by the sender of the money. It is important to spell fully and correctly the name and address of the beneficiary as well as that of beneficiary's bank. Even better, including the beneficiary's full and correct account number will ensure the funds are credited into the correct account without delay. If you wish that the counter-party be advised on receipt of funds, the full and correct telephone number can be added to the message exchanged between the banks. Finally, if you are traveling, have no bank account, but need to receive funds, advise the sender of your location and telephone number with the request that these be passed on to the executing bank. (I know all of the above sounds like motherhood, but I have personally seen many unprocessable instructions from customers.)

You may wonder: 1) If it takes only a few seconds for a payment message to travel between two banks, why does it take sometimes up to 6 days for the money to be credited or handed over to the beneficiary, and 2) Why does it cost so much?

To both questions the answer lies not in the process but in the processor. In various countries movement of funds is governed by local regulations, which have nothing to do with how the money is being wired, and banks charge commissions for every transaction.

But what you get for the money transferred via SWIFT is safety. If your cheap money order gets lost, try to get the issuer of the money order to cancel it and issue a new one. It will probably take you months during which time the issuer has the use of your money and your rented villa goes to someone else. So, like in every field, you get what you pay for. Still, for small payments the charges are indeed very high. For this reason, for my Ebay purchases I have been sending euro cash to Europe and never had a problem.

In Canada, if somebody were to send you money via SWIFT from, say, France, the practice is that we would put the money in your account the same day if that is what the sending bank has asked us to do. If you were staying in a hotel waiting for the money and a telephone number were indicated to contact you, we would call you the same day and tell you to come over to the bank to pick up the money. This is not the case always and everywhere for historical (France, Germany, Italy, etc.), geographical (U.S.A.) or infrastructure reasons (India, etc.). The timing when the money will be available to the beneficiary, and the charges involved, are known to your bank, because they are documented in terms and conditions banks exchange when establishing a correspondent relationship. Ask about, and insist on being made aware of, these details before sending money in any case, but particularly if you deal with a small bank or credit union which, in turn, depends on another, larger bank to process such payments. The clerk sitting across from you may not have the necessary knowledge at hand but if you ask the right questions, he or she will at least know where to look for answers.

I am very proud to have been among the pioneers of international banking standardization and having represented both Canada and my employer in the standardization forums of SWIFT, ISO and EDI from a time when these were new ideas to the time when they became fully consolidated in practice. This is part of my professional specialty.

If Slow Travel members have any questions about foreign exchange and payments, I will be glad to try to answer. If I don't know the answer, I'll know at least where to go and get it. You can use the Message Board or my email address from my profile (Doru).


Doron Midroni lives in Toronto. He is a partially-retired bank employee with strong interests in languages, books, travel, music, arts, and architecture.

© Doron Midroni, 2004

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