SWIFT Payments

According to FXC Intelligence, the value of the global cross-border payments market will grow from 190 trill. USD today to 290 trill. USD by 2030, which is huge business potential for such payment service providers as electronic money institutions (EMIs). In respect of that, you should find a means to enable secure financial messaging and efficient cross-border transactions with a wide range of financial institutions worldwide.

Therefore, we invite you to familiarize yourself with the SWIFT payment system. Its wide network connects thousands of globally dispersed financial institutions and counterparties and may significantly contribute to letting your EMI grow by giving access to plenty of opportunities. With SWIFT, international money transfers can become streamlined, cost-efficient, reliable, and timely for your institution, thus making your e-money more attractive to customers in the competitive market of financial services.

What Is SWIFT?

The Society for Worldwide Interbank Financial Telecommunication, commonly known as SWIFT, is a member-owned global cooperative organization that connects more than 11,000 financial institutions in more than 200 countries and territories with the purpose of exchanging financial messages securely and in a standardized way for conducting international transactions. These are supported by all types of financial transaction varieties, including international money transfers, trade finance, securities trading, and corporate actions, among others, which is why it’s useful for EMIs. It hence engages in a variety of security measures and protocols for all these transactions, none of which might see fraud or unauthorized access take place across the network.

SWIFT delivers a wide set of products and services needed to conduct full end-to-end operations in the financial sector. Thus, it offers several choices of access, develops messaging management software packages, conducts macroeconomic analyses, and allows back-office automation. The organization also develops the facility for financial crime compliance and implementation of standards, professional training, and support to the SWIFT users in enhancing their security and resiliency.

Swift was officially founded in 1973 as an umbrella cooperative organization under Belgian law, based in Brussels, and supported by 239 banks of 15 countries with the purpose of developing a secured messaging code system for cross-border financial transactions. Soon after its foundation, Swift extended both its network and its membership to virtually every bank and other financial institution across the globe. In 2002, SWIFT introduced an internet-based network – SWIFTNet – where it modernized and simplified communication among financial institutions, allowing them to securely exchange messages over the internet. Today it is still embracing new technologies in the quest to apply DLTs, including blockchain, to financial messaging.

The main goals of SWIFT are:

• To provide financial institutions and corporations with a platform for reaching the greatest possible number of international counterparts in all corners of the globe.
• Standardize financial messaging and transaction processing in international financial transactions in a uniform and accurate way.
• Facilitate the process of exchanging financial information and funds in an easy and opportune manner.
• Safeguard financial messaging from fraud, cyber threats, and unauthorized access.
• Ensure that a transaction is delivered to the right destination in the least possible time and in a secure manner.

What Is a SWIFT Payment?

A SWIFT payment is a wire transfer or another type of international payment using the SWIFT network for secure and standardized communication among financial institutions. In November 2022, SWIFT reported an average of 44.8 million FIN messages daily, making SWIFT payments very crucial in international financial activities.

How SWIFT Works

SWIFT is part of international finance that makes frictionless financial operations possible by allowing global connectivity. SWIFT functions by providing an avenue for financial institutions to send and receive different messages on cross-border payments, securities trading, and other financial transactions. Messages are transmitted in a standard format so interoperability, consistency, and dependability of the SWIFT payment process are guaranteed. SWIFT messaging management solutions can support the complex high-volume messaging needs of the world’s largest institutions and the lower volume, cost-sensitive needs of smaller banks and corporations.

Generally, most steps to be taken concerning the SWIFT messaging process include:

To EMIs dealing with cross-border transactions, SWIFT message types will be very instrumental in ensuring that processing is efficient. Customers may have international financial needs ranging from cross-border payments and trade finance to foreign exchange and global investment opportunities. Second, anti-money laundering and counter-financing of terrorism, among similar regulations, do require particular message types and formats for compliance purposes, and EMIs have legal obligations to choose the right message types.

There are literally thousands of different types of SWIFT messages. Some examples include, but are not limited to:

• Customer payments and cheques: single customer credit transfer, multiple customer credit transfer.
• Financial institution transfers: general financial institution transfer with cover and request for debit transfer.
• Treasury markets-foreign exchange, money markets, and derivatives: forward rate agreement confirmation and treasury securities trade confirmation.
• Collections and cash letters, including advice of payment and payment reconciliation request.
• Documentary credits and guarantees, including advice of a third bank’s documentary credit and authorization to reimburse.

Bank Identifier Code, more commonly known as the SWIFT code, is a key component of the SWIFT network. Each member financial institution participating in the SWIFT network has been assigned a SWIFT code identifying the institution and location. This code routes messages to the intended recipient, assuring accuracy and security of cross-border financial transactions. If your EMI provides services to customers with international financial needs, BIC will enable you to connect and communicate with thousands of financial institutions worldwide.

SWIFT Regulations

The SWIFT network falls under various regulatory supervisions that ensure it operates within the sets provided by international financial regulations and security frameworks. First, it has its own set of bylaws and internal rules, devised and put into practice by the Board of Directors at SWIFT, which is made up of representatives from its member institutions. It guides the network on aspects like governance, operations, and security protocols.

Another important regulatory level is national regulations applicable depending on the jurisdictions involved in a transaction. Many regions and countries impose their own rules related to financial transactions, data protection, and other essential aspects of concern to SWIFT. Although the EU member countries do have their respective national regulatory frameworks, they are largely consolidated through several legal acts introduced by the EU.

Following legal acts are applicable to SWIFT in the EU:

• Regulation (EU) No 2015/847, or the EU SWIFT Regulation, which is a central legal act for governing SWIFT transfers of funds in whatever currency within the EU, by putting in place a set of rules for the transfer of data for the purpose of financial messaging.
• General Data Protection Regulation (GDPR) applies to the processing of personal data within the EU, including financial data.
• EU’s 1-6th Anti Money Laundering Directives (AMLDs) apply to the monitoring of financial transactions conducted within the SWIFT network for the purposes of combating illegal financial activities.
• Regulation EU 596/2014, or MAR, is a regulation that controls insider trading and the abuse of markets within the EU. According to this regulation, any financial institution trading in securities on the SWIFT network must follow the set of regulations laid down by MAR to avoid the abuse of markets.
• Directive (EU) 2015/2366, more commonly known as the 2nd Payment Services Directive, or PSD2, provides a regulatory framework for payment services and payment service providers in the EU. While it is not specific to SWIFT, it does impact financial institutions’ use of SWIFT to provide payment services.

According to the different scope of supervision, several institutions at national and international levels supervise the operations of SWIFT. The following are among the most important:

• The European Central Bank ensures that SWIFT complies with the EU SWIFT Regulation, in terms of providing a secure and efficient financial messaging service.
• National financial regulatory authorities ensure that financial institutions comply with applicable national regulations in their jurisdiction insofar as they operate on the SWIFT network.

Benefits of SWIFT Payments for EMIs

By now, you might have come to understand that as an EMI, you could be utilizing SWIFT for the facilitation and optimization of your financial operations by securely sending and receiving financial messages related to cross-border payments. SWIFT can enable your EMI to connect with plenty of financial institutions and counterparties, assuring efficient and reliable exchange of financial information and funds. With SWIFT payments, your international money transfer services can vastly improve in serving customers with international financial transactions even better, thus instilling trust and loyalty.

Below are the detailed benefits of SWIFT to your EMI:

• You will have a chance to enjoy the global reach: With SWIFT, your EMI will be able to access their wide network of financial institutions globally. Your customers can operate globally, therefore conducting cross-border transactions, virtually unlimited.
• On your side will be the robust security measures from SWIFT, inclusive of encryption that will ensure integrity and confidentiality within all your transactions.
• One of the hallmarks with SWIFT payments is efficiency in the settlement of the transaction, thus allowing you to avail customers with faster and more reliable cross-border payment services with improvements in overall customer experience.
• SWIFT messages can support risk management for your EMI. Standardised formats enable you to identify and monitor the risks of transactions.
• SWIFT payments facilitate international money transfers, trade finance, foreign exchange, and investment products. Besides financial activities, the versatile platform enables support on a continuous basis for your EMI as you start offering diverse products and services.
• SWIFT payments can allow your EMI to access the securities trading market, and you may thus be able to offer investment and trading services to the customers.
• SWIFT messages often contain transaction information that can enable your EMI to generate exhaustive reports for customers and for regulatory compliance.

Differences between SWIFT and Other Payment Networks

Whereas SWIFT payments have many beneficial benefits, remember that as an EMI and offering cross-border payments, you will have multiple international and regional payment options. Each of these options will be chosen based on a number of considerations, including your intended services, target markets, customer needs, and the regulatory requirements of the jurisdictions within which your EMI operates.

Parameters: You can compare SWIFT with the following payment networks:

How to Join the SWIFT Network

Following are some of the important steps your EMI should take in order to prepare for seamless SWIFT integration and secure financial messaging with other financial institutions. Please note that this involves a great deal of compliance and technical knowledge, and we highly encourage consultation with our legal team representatives specializing in Financial Services and Business Development, who will be glad to walk you through SWIFT compliance requirements and guide you through the SWIFT onboarding process.

For now, note some general but vital steps to become a member of the SWIFT payments network:

• You have to contact a SWIFT service bureau. That could be a requirement to have one as an intermediary that will assist you in communicating with the SWIFT network.
• Next, put together all the documents that shall be required for the compliance testing and undergo the compliance testing.
• Depending on your business requirements, select your connectivity alternative; this might range from Alliance Lite2 to even SWIFTNet.
• In cooperation with your chosen SWIFT service bureau or partner, install the necessary SWIFT interfaces in your system so your EMI technology infrastructure meets the messaging standards set by SWIFT.
• Install safe communication protocols, which include HTTPS or other protocols that are accepted by SWIFT.
• Acquire SWIFT certification that attests your systems meet SWIFT messaging standards and security protocols.
• Get a BIC for your EMI.
• To ensure that your EMI can effectively communicate and transact within the SWIFT network, conduct thorough testing of your connectivity and messaging capabilities in a controlled environment.
• If testing is successful, you can start using the SWIFT network for live transactions.

To join the SWIFT network, you should generally prepare the following documents:

• A formal letter addressing the SWIFT representatives or your chosen SWIFT Service Bureau/partner with the expression of your EMI’s membership intention with the SWIFT network.
• Copied versions of the EMI Business Registration Certificate and Articles of Association.
• Copy of your EMI License.
• Ownership and shareholding structure of your EMI in descriptive form.
• AML/CFT documentation, including CDD records for key stakeholders, directors, and beneficial owners.
• Audited financial statements.
• Your EMI business plan.
• Proof of the type of SWIFT connectivity option the EMI will use.
• Documents on certification, proving your EMI systems comply with SWIFT messaging standards and security protocols.
• Testing plan providing details of how your EMI intends to conduct the necessary testing to get properly integrated into, and function within, the SWIFT network.

Which specific documents you would need to prepare will, of course, depend on, among other things, your jurisdiction, the nature of your business, and the particular requirements laid down by SWIFT. To ensure that all legal and regulatory matters will be taken care of with regard to your specific business model and objectives, please contact our seasoned team for a professional review and preparation of all documents.

Choosing the Right SWIFT Partner for your EMI

A SWIFT partner is an organization that provides services to financial institutions in order for them to participate in the SWIFT network. They are middlemen providing all types of services to bridge such institutions as your EMI to and the utilization of the SWIFT structure for safe and standardized communication in the global financial world. Thus, you need to consider various critical aspects to be able to choose an appropriate SWIFT service provider, which perhaps may have a strong impact on the future of your business.

First, research the mechanisms by which the provider enforces compliance, experience in trustworthiness, and reputation for handling SWIFT transactions, especially in ensuring robust SWIFT connectivity. Search out those financial institutions that have earned a reputation for dependability and knowledge in the sphere of international payments. The most impressive among them include IBM Financial Services, AccessPay, Bottomline Technologies, and ACI Worldwide, but there are plenty of other providers that can meet your EMI’s needs.

Where necessary, you will probably wish to know the international reach of the financial intermediary. For international customers, this means choosing an intermediary with a large number of correspondent banks and access to an extensive ecosystem that makes transactions seamless and of multi-currency to a wide range of destinations. This kind of extended network will provide a chance for risk mitigation by options in case one part of the network is interrupted.

If you want to introduce SWIFT payments into the operation of your EMI, then our team in Regulated United Europe would be happy to assist you in making sure that your company fully complies with the relevant legal requirements and introduces efficient processes related to SWIFT. In the case of not having obtained a required EMI license, we can definitely advise on how to obtain a license or guide the acquisition of an already existing company with an e-money institution license. Having experienced lawyers, business development professionals, and financial accountants to guide you, the implementation of requirements by SWIFT will be easy, smooth, and fully transparent. Contact us now to set up a customized SWIFT consultation and build the cornerstones of long-term success.