The Society for Worldwide Interbank Financial Telecommunication (SWIFT), is a non-governmental organization that provides financial messaging infrastructure to financial institutions around the world for cross-border transactions.
SWIFT doesn’t handle the money itself. Rather, SWIFT’s messaging infrastructure serves as the main communication network between financial institutions, allowing them to securely transmit information and instructions about transactions so that they can know where the money should end up.
SWIFT’s messaging network facilitates a variety of applications, including matching treasury and forex transactions, processing payment instructions between banks, and providing clearing and settlement instructions for payments, securities / forex and derivatives transactions.
SWIFT is relied on by more than 11,000 institutional members from over 200 countries and territories, and provides services to the following types of entities:
- Brokerage Institutes and Trading Houses
- Securities Dealers
- Asset Management Companies
- Clearing Houses
- Corporate Business Houses
- Treasury Market Participants and Service Providers
- Foreign Exchange and Money Brokers
Why does SWIFT exist?
If someone’s financial institution has no presence in a location where that person wants to send funds, they’ll need to rely on another financial institution(s) to complete the transaction. This is known as the “correspondent banking” model, which has been the foundation of cross-border payments and settlements for almost two hundred years.
Correspondent banks serve as intermediaries in the payment process by passing funds and instructions from the originating bank to the beneficiary’s bank. A typical cross-border transaction will involve three or four different financial institutions.
Correspondent banking is essential for facilitating cross-border payments, can help drive financial inclusion, and eliminates the need for banks to open up branches in multiple jurisdictions.