Is Swift the only platform utilised by Financial Institutions when engaging in International Trade?
Before we start let’s remind ourselves what Swift represents. Swift stands for Society for Worldwide Interbank Financial Telecommunications. It is a membership only global financial transmission platform. All the worlds major and minor banks are members. Top broking houses and similar financial institutions are also members.
Swift allows banks to send and receive financial messages to each other. This will include all aspects of international trade. Especially relevant are SBLC’s, Bank Guarantees and Documentary Letters of Credit. All messages are authenticated and swift provides validation and verification on all messages.
Swift and International Trade
Swift has 11,000 members in over 250 countries. It is therefore safe to assume that Swift has brought countries closer together. Especially in terms of communication. In days gone by banks would send international trade documents to each other by post. With the advent of Swift this can now be done same day. Sometimes if urgent within a few hours.
So how exactly do banks transmit Bank Guarantees, Standby Letters of Credit and Documentary Letters of Credit to each other. They use the swift system. There are two message types used. The MT799 and MT760.
The MT799 is used as a pre-advice. The sending bank will advise the receiving bank that a Bank Guarantee will be arriving. Alternatively, it could be a Documentary Letter of Credit or Standby Letter of Credit. The receiving bank can advise their client of the impending arrival of their instrument.
The MT760 is the actual message type that transmits one of the above-mentioned financial instruments. It is a simple as that. Pre-swift banks would have to wait up to three weeks for the arrival of written documents. Pre-flight it could have been up to three months.
We can happily state that swift has advanced the timelines of all international trade.
Swift – The Competition
Up to the mid 1980’s Swift’s only real competition was the telex system. There was no way though that the telex system could cope with the volumes of international trade. They were really competitors for sending payments.
Today’s competition are companies such as Baseware, Bottomline, Depository Trust and Clearing Corporation. These are just a few of the main ten competitors. Again, they compete for international payments.
However, there is future competition in the pipeline. SPFS, System for Transfer of Financial Messages developed by the Russian Central Bank. This system was introduced in 2014, with the first message being sent in 2017. The membership is limited but soon could well incorporate all of the Shanghai Cooperation Organisation membership. The main members are China, India, Pakistan and Russia. This system will completely replace Swift, and bring the Eurasian market in-house. For a complete membership list, please enter “Shanghai Cooperation Members” in your search engine.
Swift is essential for banks and their corporate clients to engage in International Trade. For the time being Swift is The Player in transmitting documents regarding International Trade. Only the future will decide how much of this market they will retain.