What makes SWIFT messaging unique in electronic payment processing?

Any messaging needs to have basic three component From, To, and content. SWIFT as network provider has long and rich history for providing the messaging standard for various domains, specifically for Payment and Securities in terms of volumes. SWIFT has travelled from earlier ISO7775 to ISO15022 to now upcoming ISO20022 shows its effort on easing and enriching the messaging standards. MT (Message Type) are standards of ISO15022 where the messaging structure are divided in 5 parts/blocks where block 1/2 are about sender/receiver, block 3 is application header, block 4 message body and block 5 is for trailer. Block 1 being mandatory for each message types and then depending on the use case and message types remaining blocks are used.

One thing to add here, the usage and format of the swift message differs for different needs i.e. The format and the type of Swift message used for payments is different from what is used for securities, reports, FX etc etc. In general the body of the swift message contains tags and these tags are two digit codes with or without the alphabet included i.e. the purpose of the tag changes based on different alphabet used (e.g. 50K, 52A or 52D, 59, 72. etc.) and the same will contain the payment information like ordering party, ordering institution, sender and receiver correspondents, currency and amount, beneficiary, charges etc. Again as mentioned earlier the format message types for securities, FX, time deposits etc will change.

In the world of electronic payments, SWIFT messaging has become a widely recognised name and used by banks and financial institutions all around the world because of its Global reach. It is used by more than 11,000 financial institutions in over 200 countries. This means that financial institutions can communicate with one another easily and securely, regardless of where they are located. Secure Messaging is known for its high level of security. The messaging system uses encryption and authentication techniques to ensure that messages are only sent and received by authorised parties. This helps to prevent fraud and unauthorized access to financial data.

SWIFT architecture includes the combination of SCP - System Control Processor, SC - Slice Processors, Regional Processors, CBT - Computer Based Terminal which is sitting at bank's premises. SWIFT also adopted Internet Protocol when it moved from X.25 network. SWIFTNet 2 introduced tamper-resistant hardware devices, known as Hardware Security Modules (HSM), to guarantee a safe storage of the PKI secrets. The DMZ layer provides additional security at a physical / logical sub-network level.

SWIFT messaging is unique in its standardisation. The messaging system uses a standardised message format that is recognised and understood by financial institutions around the world. This means that financial institutions can communicate with one another easily and efficiently, without the need for complex translations or adaptations. SWIFT messaging is designed to enable straight-through processing (STP) of financial transactions. This means that transactions can be processed automatically, without the need for manual intervention. STP helps to reduce errors and processing times, which can save financial institutions time and money. SWIFT messaging is unique in its ability to track messages in real-time.

Nearly $80 trillion of money is sent via a wire transfer globally, but the process is harder and more complex than it should be. Money can take days to arrive because of outdated, inefficient and costly methods. It is important to note that SWIFT in recent times has been focusing on new and improved solutions such as GPI, ISO20022, SWIFT Go, etc. ; which are addressing many of the highlighted challenges. But in order to achieve the full potential of money movement business it is important for banks to modernize their existing infrastructure so that entire value chain can work in a cohesive manner.

There are different alternatives coming up with new solutions such as Visa (Earthport), Mastercard Send, Ripple's XRP, etc. Initiatives like CIPS also could be a potential alternative if other countries also takes such initiative independently. Cross-border immediate transfers also is a potential alternative for SWIFT messaging which is focusing on leveraging interoperability between domestics networks from different countries.

One thing that is rarely mentioned when it comes to Swift is that it is neither a clearing nor a settlement network. Swift is a financial messaging system which sends global payment orders initiated by financial institutions to be processed by a clearing or settlement system. Swift doesn’t handle funds, nor does it move money or control the settlement leg, which is done through the traditional global network of correspondent banks. And it is the settlement phase in the life of a cross-border payment that contributes most to the slower speed and high cost of bank wires.

Swift messaging is frequency perceived as only handling payment instructions. Whilst payment instructions constitute a large proportion of instructions across the network, there are other categories of instructions including Securities, Foreign Exchange and Money Market confirmations, Trade related collections and guarantees, letters of credit. Also a general category to cover account related transactions including end of day and intraday statements, transaction advices etc

SWIFT messaging is a unique and powerful tool in the world of electronic payments processing. Its global reach, secure messaging, standardisation, straight-through processing, and message tracking capabilities make it an essential tool for financial institutions around the world. Whether you are a small local bank or a large multinational corporation, SWIFT messaging can help you to communicate with your partners and customers securely and efficiently.