SWIFT Codes: Meaning, How They Work & Their Importance in Cross-Border Transactions

27 March, 2024

Synopsis

• SWIFT is a messaging network used by banks to notify each other of cross-border transactions.

• SWIFT assigns a unique code to each financial institution involved in the SWIFT network.

• You will need your beneficiary’s bank’s SWIFT code when sending money abroad.
  
  

Whether you want to send money to a family member abroad or leverage international investment opportunities, cross-border transactions have enabled it all. The process of sending money abroad is pretty much similar to that of sending money to a domestic account. You will require the beneficiary’s name, bank and branch details, bank account number, etc. However, instead of an Indian Financial System (IFS) code required in domestic money transfers, you will need a SWIFT code. In this article, you can get information on what a SWIFT code is and its importance in cross-border transactions.

Understanding SWIFT

SWIFT stands for Society for Worldwide Interbank Financial Telecommunications. It is a network used by banks to communicate with each other. SWIFT is not owned by a single entity; it is a global member-owned cooperative. SWIFT’s messaging services are used by more than 11,000 financial institutions in more than 200 countries.

Understanding SWIFT Codes

SWIFT assigns a unique identifier to a financial institution using the SWIFT network. This unique identifier is called the SWIFT code or Business Identifier Code (BIC). They follow the International Organisation of Standardisation (ISO) 9362 and can be either 8 or 11 characters.

• First four characters: The financial institution’s code

• Fifth and sixth characters: The country code

• Seventh and eighth characters: The city code

• Last three characters: The individual bank branch (optional)

For instance, the SWIFT code for HDFC Bank is HDFCINBB. Here,

• the first four letters represent the institute name, i.e., HDFC,

• the next two letters (IN) represent the country code, i.e., India

• and the last two letters represent the city code denoting the bank’s head office in Mumbai.
  
  

How Does SWIFT Work in Cross-Border Transactions

Assume that you, as an HDFC Bank Account holder, want to send money to a family member who holds an account with a local bank in the United Kingdom. Here, you will need the family member’s bank details, including the UK bank’s SWIFT code. Once you make the request with HDFC Bank to remit money, HDFC Bank will notify the local bank in the UK about the payment over the SWIFT network.

Think of the SWIFT network as a messaging tool. The way you would inform a friend that you’re sending them money, a bank in the SWIFT network will inform another bank of upcoming transactions.

Why is SWIFT Code Important in Cross-Border Transactions?

Here’s why banks use SWIFT for wire transfers between two countries:

• Security: SWIFT employs high-level data encryption and decryption techniques to ensure the authenticity of transactions between two entities.

• Ease of Fund Transfer: Thanks to the SWIFT network, you can send money abroad with ease and high levels of security.

• Compliance: SWIFT allows optimum compliance, considering the various complexities associated with cross-border transactions, including global trade.

• Global Network: The SWIFT network comprises global shareholders, facilitating the benefits of globalisation to numerous countries across the world.

• Efficiency: SWIFT ensures that funds are transferred to the intended beneficiary promptly and at minimal costs.
  
  

SWIFT vs IBAN

When it comes to overseas bank transfers via SWIFT, you also ought to know about International Bank Account Number (IBAN). Simply put, a SWIFT code identifies a banking institution and IBAN identifies individual accounts involved in a cross-border transaction.

Remit Money with HDFC Bank’s RemitNow

RemitNow is a secure online Foreign Outward Remittance platform from HDFC Bank. It allows you to send money globally from the comfort of your home and office, via HDFC Bank’s NetBanking platform. All you have to do is add the beneficiary, select Funds Transfer, enter the amount to be sent, accept the terms and conditions and confirm.

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*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.