International Payments

While there could be various modes of payments as discussed in the last article but the landscape becomes complicated when it comes to making payments internationally. Think of a person or an organization in Mauritius wishing to make a payment worth a million dollar to another organization in Canada. The 1^st thought that could strike anyone’s mind is: This can be done easily by internet banking as we do for our day to day transactions. But this is easier said than done. If a person in India, having an account with say ICICI bank Mumbai wants to transfer an amount to an account in HDFC bank Delhi, this can be done via internet banking quite easily because the clearing and settlement for this would done with in India. For example if Mr. A has a bank account with ICICI bank and he wants to transfer INR 1000 to the account of Mr. B at HDFC bank, he can do it electronically by adding the account of Mr. B in his dashboard and then initiate the transaction. Since all the banks eligible for electronic bank are registered with Central bank of India (RBI), the netting of the amounts would be managed by it and hence clearing and settlement is not so complicated.

Domestically payments can be made through RTGS system where the settlement is done on a real time basis ie without any delay. RTGS is generally allowed only for large transactions (more than 2 lacs) Whereas in NEFT mode, the small amounts are settled in batches and it takes some time for actual funds to get transferred.

Both these modes are managed by RBI and complications are limited.

But when it comes to global transaction banking, there are many complications involved, such as:

• Different Currency
• Different clearing systems
• Different payment messages format
• Different Regulations by countries
• Different cut off timings of clearing systems
• Different in Banking relationships 

The answer to all these complications would have been a centralized body or platform which could transmit the information between banks/stakeholders in different countries by communicating with them on a real time basis and in a secure and reliable manner.

Keeping in mind the above requirements, a body called SWIFT (Society of Worldwide Interbank Financial Telecommunication) was established in 1973 with the aim of communicating and transmitting financial/system/business related messages in a secure, speedy and reliable manner. With around 10000 banks, financial institutions and corporates in around 212 countries, SWIFT had been adopted as a centralized body for passing on the financial and business messages across the globe and has been established a lot of trust among banks, businesses and other financial institutions.

One can say that SWIFT has, in a way, greatly accelerated the concept of globalization since its inception and billions of messages are processed by it on daily basis in a secure and reliable manner.

Thought SWIFT has plethora of services to offer to its stakeholders, at its core it provides 3 main services: FIN, Fileact and Interact.

FIN is a service provided by SWIFT which makes sure that a particular format (MT type) of message is validated for the standards on a real time basis and is transmitted by it a highly secure, speedy and reliable manner. MT messages are categorized into 10 business services which are further divided into different message types. 3 digit numeric code in front of MT identifies a particular business service and its sub category. For example MT103 is a single customer message as it falls in 1^st business service of customer initiation messages and 3^rd sub category of single customer message.

Each message type has a defined set of format which contains a relevant set of information and which could be easily read, understood and executed by the receiver of that message. For each MT messages transported, SWIFT charges a service charge just like we pay for calls which we make from our mobile phones.

Apart from the FIN or MT messages there exist numerous other formats like XML, Paymul, BAI , which are not validated by SWIFT. But these types can be easily transmitted by SWIFT with the help of its second service called Fileact. In this service, SWIFT allows banks to transport any file of upto 250 MB in a secure and reliable manner. SWIFT does not authenticate or validate these files and its only purpose is to transport it from one party to another. Banks and institutions can save a lot on the transmission fees as they can batch up thousands of messages in a file.

And the third and the most recent service offered by is InterAct which allows the real time communication between two parties. This is particular useful for large corporations and banks for their intraday liquidity management and forecasting purpose.

Apart from these 3 services, SWIFT also offers variety of other supporting tools like publishing reference data (BICs, IBANs, Currency codes, Country codes), implementation services for its products, offers training and guidance on different topics, support and guide various regulatory authorities on various issues and agendas, conducts a lot of research and publishes news, articles and whitepapers as a knowledge hub.

To conclude, international payments landscape could very well be synonymized with SWIFT as it has acted as a catalyst in integrating and standardizing the payments world and has a driving force for making the banking world more globalized, efficient and secure.