What is SWIFT?

"SWIFT" stands for 'Society for Worldwide Interbank Financial Telecommunication'. So, what do you understand from the name ?

It is a cooperative society headquartered in Belgium. But what kind of cooperative society? It’s a society where the members are banks and financial institutions (sometimes corporates too). The members use a method of telecommunication between themselves throughout the world for sending financial messages. That’s what the name stands for.

But why do banks use this? They use this because SWIFT provides a way to encrypt the financial messages between banks in such a way that only the sender bank and receiver bank will know the details. No one in between can break the encryption. You can imagine the value of international financial transactions performed every day. It is in millions of US Dollars. So, a strong and robust encryption system is vital. Also, messages sent through SWIFT are almost real time. It means if you send a SWIFT message from India to New York, it will reach in minutes. So, for any kind of financial message that has to be sent from one bank to another, for example sending a letter of credit, a bank guarantee, a payment from an importer to an exporter - all are done mostly through SWIFT.

What is SWIFT Code or Business Identifier Code (BIC)?

But how will one member identify another member of SWIFTNet? Using an ID. This ID is called the business identifier code or the swift code. Here ‘B’ stands for ‘Business’ and not ‘Bank’. You may wonder why? Because not only banks or financial institutions but corporates can also become a member of SWIFT to communicate their instructions with financial institutions directly. SWIFT provides a separate product for corporates called the 'SWIFT Score'.

The SWIFT code acts not only as an entity or member identifier but it also contains important information about the location of the entity which is used to redirect a swift message to it.

Let's understand how.

SWIFT codes are 8 to 11 characters in length. For example, lets see how a branch of Deutsche bank in Germany gets identified using BIC.

DEUT DE SS 648

The first four alphabetical letters stand for the business entity. Here DEUT stands for Deutsche Bank. So anywhere in the world, any swift code for Deutsche bank will start with DEUT. 

Next two alphabetical letters form the specific country code where the branch is located. ‘DE’ stands for Deutschland or Germany. 

The next two letters can be alphabetic or numeric and they stand for the institution head office in the country or the head office in a particular region in the country. Here ‘SS’ stands for Stuttgart, a city in Germany. 

So DEUTDESS is a valid 8 character SWIFT code and if you don't add further characters to this code, it will indicate that it's the code of the Deutsche bank main branch at Stuttgart city of Germany. 

Now suppose you need to reach a particular branch, then a further 3 letter code is added to the code. Here 648 denotes a particular branch in the Stuttgart region.

Let's take another example.

SBIN IN BB

SBIN stands for State Bank of India. IN stands for the country India. BB stands for Bombay. So, SBININBB is the swift code of the main branch of State Bank of India in Bombay or Mumbai in India, which also happens to be the national headquarter of the bank.

SBIN US 33

Whereas in SBINUS33, the first four letters remain constant denoting the name of the member, US stands for the country the USA and 33 is the numerical location code of New York. So, SBINUS33 is the swift code of State Bank of India New York Branch.

What are Distinguished Names (DN)?

With the advent of ISO 20022 MX messages in SWIFT, the BICs are to be replaced with Distinguished Names (DN). This is a form of hierarchical naming system which follows LDAP (Lightweight Directory Access Protocol).

At the top of the hierarchy is the organization denoted by ‘o’. Next, is the organization unit denoted by ‘ou’. There can also be identifiers like the common name ‘cn’. It's always written in small cases and the lowest node in the hierarchy comes in the left and the highest node in the right. So, while reading a distinguished name, you should read from right to left and not the other way around.

So, the BIC we just learnt about - SBIN US 33 will look like this when represented using DN 

ou=33,o=sbinus, o=swift

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Next:    Understanding SWIFT Messaging Standards: MT and MX Messages Explained