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| SWIFT Logo (Photo credit: Wikipedia) |
It would be great if financial institutions around the globe
could communicate with each other and all trade using the same currency.
Unfortunately, this is unlikely to ever happen. Enter SWIFT. SWIFT stands for
The Society for Worldwide Interbank Financial Telecommunication. It's a network
that enables financial institutions to send and receive information about
transactions in a secure and reliable environment.
The SWIFT secure messaging network runs from two redundant
data centers. One of those data centers is located within the U.S. The other is
in the Netherlands. Each center shares information in near-real-time. If one of
the centers fails, the other is able to pick up the slack, handing the traffic
for the entire network.
History
The SWIFT system didn't always exist. In fact, it's
relatively new in the financial industry. Started in 1973, it was supported by
239 banks in 15 different countries. The major benefit of the organization at
that time was that it established common standards for financial transactions
and it also shared data processing systems as well as a worldwide
communications network.
In 1977, the first message was sent. Just one year later, 10
million messages had been sent. Then, in 1979, the North American operating
center opened up. The next year, Hong Kong and Singapore were connected to the
system. From there, it grew steadily through the '80s, enhancing stability and
security - the system also started turning a profit in 1982.
By 1991, the organization had been noticed by the
Smithsonian and received the Computerworld Smithsonian Information technology
Award for its standardized financial telecommunication work. Without SWIFT,
worldwide financial transactions would be virtually impossible at scale since
private networks would be unable to communicate with each other.
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| Swift Network Organization |
In 2003, the system turned 30 and had a lot to show for it.
Yearly traffic reached 2 billion FIN messages - nearly double the volume since
1999. In 2010, SWIFT acquired Sunguard's AMH business (Arkelis), thus extending
its portfolio of high-end messaging services. In 2011, it's most innovative
advancement ever happened. It launched SWIFTRemit - the first global platform
for person-to-person payments.
Why It's Good
Financial institutions, by and large, love the SWIFT system.
For them, it means a couple of things:
Security - Financial institutions can transmit data in an
environment that is guaranteed to be secure, uniform, and reliable.
Transactions between financial institutions would otherwise be inherently risky
since data transfers on a public network are not secure enough for the kind of
data that most financial institutions transfer.
Syntax Standards - Financial institutions need a
"central hub" where they can communicate with each other. SWIFT
provides that. Since it standardizes communication between all member
institutions, it doesn't matter what internal, proprietary, system a company
uses.
Integration - SWIFT provides real turn-key solutions for
member institutions. These solutions provide members with "Computer-Based
Terminals" so that each member can manage delivery and receipt of
messages.
Consideration
Financial firms that make use of SWIFT systems often feel
very secure using the system. However, after September 11, 2001, the U.S.
government was allowed access to SWIFT's system. SWIFT has been criticized for
allowing the government access to sensitive data. While the government has only
ever accessed data in an attempt to track terrorist activity, some critics
believe any access at all compromises the integrity and security of the system.
Dennis Tarver is a business finance consultant. His articles
mainly appear on personal finance and business sites around the web. For more
information about foreign
currency payments, visit the link.
