What is SWIFT?

Being an NRI (Non Residential Indian), once in a while I sent money to India. Unlike before, nowadays it all happens online and is quite easy. Within the comforts of my home, I just need to login to my internet banking account, do some clicks and money will reach my bank account in India in a couple of days. My bank makes it possible through SWIFT!

SWIFT or the Society for Worldwide Interbank Financial Telecommunication is a worldwide network for financial messages through which its members (i.e. financial institutions such as banks) can exchange messages related to money transfer for their customers. The messages are sent securely and reliably to the target member financial institution of SWIFT.

By the way, SWIFT is just a messaging service and it doesn’t facilitate actual cash transfer between banks. For doing that, the banks that exchange authorization message for money transfer shall have an external banking relation between them and normally they settle the actual cash transfer in parallel.

But the point is, once the authorization for the release of funds are sent through SWIFT, the target bank can release the money to the end user’s account and the bank is assured of the money from the sending bank. Sometimes, the target bank will have a branch in the sending bank’s country or vice versa and they may settle it within the purview of a single country.

Thus, the end user will receive the money without needing to know the hassles of exchange rate conversion and various other formalities, which happen in parallel between the banks. Also, the user will receive money, irrespective of the time taken for all these.

Over 8,700 banking organizations, securities institutions and corporate customers in more than 209 countries use SWIFT for transferring financial messages, making it the most widely used network for international financial messaging. Each financial institution registered with SWIFT is identified by a bank identifier code popularly known as the ‘SWIFT Code’.

Through SWIFT, transfer of funds to various countries can be completely automated; where the core-banking solution of the bank can directly communicate with SWIFT to do the transfer. This makes the process of money transfer more efficient, secure and with lower cost. Thus, SWIFT makes the process of transferring funds across the globe a lot easier.

Related Articles
- Online money transfer to India for NRIs
- What is a Core Banking System?

What is Interactive Financial eXchange (IFX) Standard?

The advent of Information Technology (IT) has helped the Financial Services Industry in more number of ways than we can ever imagine of. From the very fact that it helps me write this post related to finance, read by those unknown readers of The Finance Blog, belonging to geographies far across the world, to the valuation of companies that results in multi billion dollar deals; IT had unarguably made its stronghold in the Finance world!

Various IT applications catering to the same domain/sub-domains of Finance are made/being made. For example, there are umpteen number of applications that can handle the tasks of a bank alone (core-banking applications); Profile, FlexCube, Finnacle, Hogan, Temenos, Tieto Enator, to name a few. Since each of these applications are made by different owner companies, each of them follow their own standards for maintaining bank data (eg. name, a/c no, principal, interest rate etc.) in its databases. For example, some applications store date in DD/MM/YYYY format while others store it in MM/DD/YYYY format (as followed in UK and US respectively). This could lead to certain problems.

Consider a case in which two banks, a US and a non-US bank, are merging to form one single bank. After the merger, the customer base or transaction data of the two banks might need to be combined together. Quite obviously, if the two banks’ applications follow different data standards, then the merger would be difficult and may not even be possible at all.

Some times, the same bank may purchase applications from various vendors to create a combined IT environment to service the bank’s needs. I.e., the core-banking application may be from vendor A, the loan servicing application may be from vendor B and the portfolio management application may be from vendor C, so on and so forth.

The above situations point out the need for having some sort of a standard for storing financial data in applications meant for Banking and Financial Services industries. The Interactive Financial eXchange or IFX does just that. To put it simply, a financial application that follows the IFX standard is interoperable with any other financial application that uses the same standard and can be easily made to work in concert.

According to its promoters, IFX is an open, interoperable standard for financial data exchange that is designed to meet the business requirements of the global financial services industry.

Thus, IFX is a data standard that sets the norms for the usage of financial data in the global financial services industry. With the world economy growing towards one without barriers, IFX would probably set the tone in financial data handling, making the process a tad easier.

Further reading
- IFX Framework
- IFX Standard

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- What is a Core Banking System?

What is a Core Banking System?

Core Banking System or Core Banking Solution is a term that we hear very often these days. For IT and Banking folks, this term doesn’t need any explanation but for those who want to know a bit, here’s a brief overview of what it means.

Previously a bank’s core operations such as keeping a ledger of various transactions, maintaining customer information, interest calculation of loans and deposits, adjustments to accounts on withdrawal and deposits of funds etc. were done manually. With the advent of ICT (Information & Communications Technology), efforts were done to automate various banking processes using software applications so as to make them simple, efficient, effortless and cost effective. Thus, the platform where ICT is used to perform the core operations of a bank, like those mentioned above, is known as Core Banking System.

In Core Banking System, software applications record transactions, maintain customer information, calculate interest on loans and deposits etc. The data, instead of huge ledgers, are stored in backend databases in digital form. Now, the same software can be installed in various branches of a bank and can be interconnected through the internet or telephone lines to form a core banking network of the bank. The advantage, a customer can operate on his account from any branch of the bank and if the bank owns Internet Banking or ATM facilities, then the customer can operate on his account from virtually anywhere.

Thus, Core Banking System has radically changed the way in which banks function. The greatest advantage of having a Core Bank System is that new features and functionalities can be easily added to the system that customers will have a whole lot of services that they can use. Electronic funds transfer between banks, online trading in the stock markets etc. are examples of this, which were unheard of in banks pre Core Banking System era.