SWIFT Stands for “Society for Worldwide Interbank Financial Telecommunication”. When we send money to a friend living on the other side of the world the local bank is connected to a global messaging system called SWIFT.
It does not hold funds or manage accounts on behalf of consumers. It is a type of financial messaging system.
The financial messaging services went live in 1977 to replace the Telex Technology , which was widely used by banks to communicate back then. Technology has advanced during recent years and the competition has emerged.
What do banks use to communicate ?
SWIFT is the system that banks use to securely send messages to each other.
It is one of the key pillars of the financial world, connecting more than 11000 member banks in some 200 countries and territories globally. Trillions of dollars’- worth of currency are sent across borders every single day and it’s largely thanks to the message sent by SWIFTS.
Banking system uses a code called “SWIFT Code” which consists of 8 to 11 characters. Bank Code + Country Code + Location Code + Branch Code.
Recently SWIFT announced partnership with MICROSOFT. This is a cloud native proof of concept to host SWIFT Infrastructure and enable cloud native payment transfers on Microsoft Azure.
SWIFT has been thrown into the spotlight with the Russian invasion of Ukraine, when numerous Russian and Belarussian banks were removed from the SWIFT network as part of economic sanctions. This essentially means Bank’s ability to conduct financial transactions on an international scale has been disrupted.
Can see that in the cross-border payments, it came to be slow and expensive.
Also note that SWIFT is not the only system for international transactions. Russia has its system for transfer of financial messages or SPFs , serving 400 users as on February 2021. Twenty three of the users were foreign banks. The people’s bank of China also has the Cross- Border interbank payment system, or CIPS. By 2019 it reached more than 3000 banks directly and indirectly, across 167 countries and registers.
A company called Ripple provides cross-boarder payment service by using distributed ledger technology. It boasts superior transfer speed and lower transaction costs.But the company claims to have signed up just more than 100 financial institutions.
Alternate networks like cryptocurrencies and blockchain technologies are advancing.
Block chain technology is a ditributed ledger technology (DLT) makes the history of any digital asset.This technology records the provenance of a digital asset .
Blockchain can be described as * Collection of records * In which data stored in blocks, each block linked with each other, * Strongly resistant to alteration and * Protected using encryption.
Cryptocurrencies are a form of digital or virtual currency. Cryptocurrencies are immune to counterfeiting, don’t require a central authority. Protected by strong and complex encryption algorithms. Transaction details are permanently inscribed in the blocks.
This records also holds the number of bitcoins each of the account holder holds their own. A hacker will not be able to alter the data in the blockchain because * each user has a copy of the ledger and * The data within the blocks are encrypted by complex algorithms. All of this is made possible with the help of blockchain technology.
Caroline Malcolm, who heads international policy at blockchain data company chain analysis acknowledges that, ” a legacy system like SWIFT is hard to detach from. But there arecertain capabilities and features in blockchain based system that can’t be matched by traditional systems. “
She said in an interview ” Blockchain allows people to hold their own funds and control that in a very divert way”.
Time will tell if newcomers can dethrone the SWIFT.