How does the swift system work?
Have you ever wondered how banks around the world communicate instructions to each other? In this article, we will explain to you how the SWIFT system work, and how a SWIFT code makes sure that your money gets where it’s going.
Before SWIFT codes were introduced, most banks used TELEX. People who worked in an office environment before the Internet became a regular part of daily life are familiar with TELEX.
Organizations used a specific TELEX address to convey text-based messages. Prior to the beginning of SWIFT codes, a direct TELEX instruction was sent from one bank to another institution. The TELEX network was also referred to as ‘The Wire’, hence the term Wire Transfer. However, the TELEX system was slow, insecure, and non-reliable, so in 1973 the SWIFT (Society for Worldwide Interbank Financial Transfers) system was created to smooth out the process.
SWIFT System: How does it work?
The SWIFT network is not just a payment mechanism– nor they work differently from the old system.
Each bank has a unique combination of code made from letters and numbers. Once the instruction is recorded into the SWIFT system, it is then transferred to other institutions. When this is done, the funds are either transferred from a correspondent bank or, if the sending bank has accounts at the receiving bank, the transfer is done through the institution’s own accounts.
Why is the SWIFT Network important
SWIFT system has made banking much cheaper, faster, and reliable for banks to communicate instructions with each other. So ultimately, making the transfer less expensive for customers and far more secure.
SWIFT system has also reduced the risk involved with the money transfers because the member banks are known and trusted entities. Even if two banks that have never dealt before are able to communicate with each other in a risk-free environment.
How to find your banks SWIFT code
Whenever you make an international money transfer, you will be requested to present the SWIFT code. This is because it’s an important piece of information. Most of the banks published their SWIFT codes on their websites for the customers to have easy access. But there is also a centralized lookup facility available: http://www.swift.com/bsl/.
The best way is to check with your bank to ask for the code that can be used for the transaction. This is because some banks have multiple codes for different branches.
We recommend our readers always check the SWIFT code before initiating any international payment. This would allow them to save time as well as money.
For more details about international payments check our guide on SWIFT Code and IBAN number.
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