An acronym for Society for Worldwide Interbank Financial Telecommunication, SWIFT was launched in 1977 in Brussels to help establish practices for financial institutions. Specifically dealing with standardizing fund transfers between banks, SWIFT has become a multinational banking community communicating in the same language.
What does SWIFT do?
A few things, but they’re most known for providing a network that allows financial institutions to “communicate". But we’re not talking about text messages or Christmas cards. Financial messaging deals with fund transfers, with each message calling on another bank to either send or receive funds. SWIFT also creates software that allows banks to send messages over their network. Companies don’t need to use SWIFT-developed programs to use the network, and can use their own or third party-developed software to send messages over the SWIFT network.
It’s important to note that SWIFT doesn’t hold any financial information themselves. The firm only provides a way to send financial messages and transfer funds between financial institutions.
How big is SWIFT?
Pretty big. SWIFT claims to have over 11 thousand financial institutions in its network. Over 6 billion FIN messages were sent in 2015, with a single day high of 27.5 million messages.
So Swift is foolproof, right?
Ummm…well, not so much. SWIFT has been hacked a bunch of times in 2016 alone. In February, the Bangladesh central bank was hacked, resulting in an $81 million theft. In May, $12 million got taken from an Ecuadorian bank. In June, a Ukrainian bank lost $10 million to a hack.
SWIFT has started responding to critiques on its security breaches, and just announced the release of a Daily Validation Report that helps banks stay on top of potential frauds.
Why is SWIFT important?
SWIFT is an influential cooperative that people don’t fully understand, which adds to its allure. It's been around for a long time and is pretty well entrenched into international banking systems. For example, when Iran was hit with economic sanctions, the country's banks were kicked out of SWIFT.
At the same time, SWIFT has been heavily criticized with susceptibility to hacks and security breaches. Blockchain enthusiasts also feel that SWIFT’s days are numbered, and that distributed ledgers will soon replace financial messaging. Even though that remains unlikely in the short term due to how deep its roots are in the banking world, SWIFT has been investing in blockchain innovation through its subsidiary, Innotribe.
