Banks are essential financial institutions in society. Private and public parties rely on banks for various economic activities, such as borrowing and saving money. Transferring money is also another fundamental purpose of banks. Today, banks use the SWIFT system for financial transactions among themselves. They can do this securely because each bank has a specific SWIFT code. For example, the Commonwealth Bank SWIFT code is CTBAAU2S. This set of characters is unique to the Commonwealth Bank of Sydney Australia, just like how an ID number is unique to everyone.
What SWIFT is
SWIFT is a mutual organization in the financial sector. It stands for Society for Worldwide Interbank Financial Telecommunications. Since the 1970s, SWIFT has acted as the proprietary communications medium of financial institutions, such as banks, exchanges, brokers, dealers, and more.
When you are transferring vast sums of money, such as in the millions, you need a secure and reliable method to do so. SWIFT can meet this need. Its near-50-year service is a testament to the trust the people have put both on the organization and its proprietary communications technology. At present, over 200 countries and 10,000 financial institutions use SWIFT for its military-grade secure communications that range from traditional payments to securities confirmation.
What SWIFT is Not
An important clarification is that SWIFT is not a payment system but rather a communications system. SWIFT neither holds assets, such as funds or securities nor does it handle accounts. It is the provider of the network, products, services, and standards that let its member institutions connect and exchange financial information. SWIFT also does not keep financial information, but it only holds such data for a limited time.
The main difference between SWIFT and your typical internet protocol networks is that SWIFT only accepts some liability for certain losses due to delays in transaction messages, which may be a consequence of technical issues within SWIFT.
The SWIFT Code
Each member’s financial institution has a unique SWIFT code. Sometimes you read or hear others refer to it as the SWIFT ID and Bank Identifier Code or BIC, but they all mean the same thing. It acts like the ID number you get on your driver’s license or company. Consider again the Commonwealth Bank SWIFT code, which is CTBAAU2S. You can break down this code into its particular components.
Institute Code – The First Four Characters
This code is usually a short version of the name of the financial institute. For the Commonwealth Bank of Australia, it is CTBA. For the National Australia Bank in Sydney, the institute code is NATA.
Country Code – The Next Two Characters
The next two characters refer to the country of location of the institute. The country code for both Commonwealth Bank of Australia and National Australia Bank is AU.
Location or City Code – The Next Two Characters
After the country code is the location or city code. This set can either be letters or numbers. The location code for the Commonwealth Bank of Australia is 2S, while that of the National Australia Bank is 33.
Branch Code – Optional Last Three Characters
Some institutes can have different branches, and the SWIFT code allots three final characters to distinguish branches. If the SWIFT code refers to the main branch, it can either leave the final three characters blank or have it as “___.” The Commonwealth Bank of Australia has no branch code, so its final SWIFT code is CTBAAU2S or CTBAAU2S___. On the other hand, the National Australia Bank does, and it is 03M. Thus, its final SWIFT code is NATAAU3303M.
How to Use the SWIFT Code
If you want to transfer money from your bank to another in a different country, you will need the SWIFT code of the recipient bank. You can quickly find it with an internet search and is usually on the bank’s website. You then input the banking details of the recipient, such as the account number and currency, as well as the SWIFT code. Afterward, the SWIFT system verifies the legitimacy of the transaction.
Once it does, your bank will send a payment order containing all the transaction details. This payment order can stop at different intermediary banks before it reaches its final destination, like how a train stops at different stations. When the recipient bank receives the message, it clears the transaction and deposits the amount into the account.
The recipient bank can also withhold the payment order if it finds something suspicious regarding the transaction. In this case, the SWIFT system is no longer involved as its job ends when the recipient bank receives the message.
Since the 1970s, SWIFT has allowed financial institutions to communicate and perform countless amounts of transactions securely. Over the decades, it has included advancement in technology to improve its services. As the dominant and most trustworthy communications platform, you can rely on SWIFT and its SWIFT codes for your banking needs.