A Study of Swift



Nov 15, 2023

What is Swift?

Perhaps not the most famous Swift in the world (shoutout to Taylor!) but definitely just as widespread, Swift (aka the Society for Worldwide Interbank Financial Telecommunications) is a system that powers international money and security transfers.

Swift is a messaging system. This is an important distinction, as they do not facilitate money or asset transfers themselves; rather, they securely send money transfer instructions between banks. Being a money transmitter requires significant licensing and is heavily regulated, especially for cross-border interactions. Swift has been able to use the network of banks to make the transfers themselves, while being the best way for those banks to communicate with one another.

💡 To give a sense of Swift’s scale, in 2022 they averaged almost 45 million messages per day on their network between their robust network of over 11,000 financial institutions around the world.

Before Swift, there was only Telex, another messaging system (now used primarily by the maritime and aviation industries) that required users to write out in full sentences what the transactions entailed, which was then interpreted by a receiver and executed. This led to many human errors, took a long time to process, and opened up many security concerns.

Me using Telex in 1952

In the mid 1960s, a banking consortium in Europe got together to develop a better system to mitigate these problems. Swift was the product of this endeavor, and it was officially launched in 1977.

Since then, Swift has added several product suites to its portfolio. Here's an overview of some key offerings and service areas:

  1. SwiftNet Messaging Platform: SwiftNet is a messaging platform that enables seamless and secure communication for financial services organizations. It comprises four main messaging services:

    • FIN: This is the longest-established service, facilitating the exchange of messages formatted with traditional Swift MT standards. It supports message-by-message exchange and store-and-forward mode, offering functionalities like message copy, group broadcasts, and online retrieval of previously-exchanged messages.

    • InterAct: Similar to FIN, InterAct supports message-by-message exchange and the exchange of proprietary formats. It offers additional flexibility with store-and-forward messaging, real-time messaging, and real-time query-and-response options. InterAct uses MX message types, expressed in XML syntax and developed in accordance with ISO 20022 standard methodology.

    • FileAct: This service is used for transferring large batches of messages, such as bulk payment files and large reports.

    • WebAccess: Allows SwiftNet users to browse financial websites available on SwiftNet using standard internet technologies and protocols.

  2. Interfaces and Integration: Swift provides a range of options for connecting to its network, including cloud-based connectivity and the Alliance Messaging Hub. These solutions are designed to simplify operations for their users.

  3. Compliance & Shared Services: Swift offers services to help businesses comply with financial crime regulations. This includes applications for KYC/AML, financial fraud prevention, customer security programs, data & analytics, and screening against sanctions.

  4. Professional Services: With its Professional Services, Swift offers specific expertise to ensure effective utilization of its products and services.

  5. Swift for Corporates: This service is tailored for corporate treasurers of multinational corporations, dealing with various banks for cash, trade, and treasury services.

  6. Market Infrastructures: Swift provides secure, reliable, and efficient solutions for Market Infrastructures and their communities.

These products and services underline Swift’s role as a critical infrastructure in the global financial system, facilitating secure and efficient financial messaging and compliance with regulatory requirements. Together, they generated over $1 billion in revenue for the company in 2022. The key drivers of income were message traffic fees, Swift interface fees (for products and services), and recurring revenue (membership fees and recurring service fees). Swift’s fees can range from $3,000 to tens of thousands, depending on the services being provided.

To send a transaction via the Swift platform, these are the steps (from an end-user’s point of view):

  1. First, the sender must gather these items:

    • Recipient's bank name, address and country, routing code

    • Recipient’s full legal name, current address, and account number

    • Swift Code of the bank account

    • Sender’s government-issued ID

    • Purpose of sending funds

    • Any other documentation or information required by sending and receiving banks

  2. Sender must physically go to bank or log into the bank's system to request an international wire.

  3. Read through terms, fees, and limits associated with sending cash abroad.

  4. Sender may be asked to confirm the country they are sending money to, the currency they wish to send in, and the above information.

  5. Sender may be asked to verbally confirm the transaction.

  6. Sender sends the money from their bank via Swift, and keep a record of the event.

  7. On the receiving end, the receiver will need to collect their bank's Swift number for the person sending the money. These Swift numbers may differ based on whether funds are being received in U.S. dollars or foreign currency.

This is still an insane process, and it has been relatively unchanged since it launched nearly 50 years ago. While Swift charges end users zero fees, the banks sending and receiving the money transfers will often charge a fee, ranging from a few dollars to $50 or more, depending on the size, speed, and destination. It is also slow, taking between 1-4 business days to settle. This is now how money should move in the 21st century, especially given the strides made in blockchain technology.

Polybase is building a new way for the world to communicate financially. However, we are taking a contrarian approach to others in the space; we emphasize privacy, security, access, and compliance on a blockchain. Like Swift, our goal is to be the rails by which transfers are made. We will not custody any funds, we will not transfer any funds. However, unlike Swift, we have a goal of enabling self-sovereignty. Many people do not have access to banks, and even fewer have access to banks within Swift’s network. Businesses and individuals should not have to rely on a small network to facilitate transactions. Our protocol is permissionless and decentralized, meaning everyone can have access to it, and no one is the single gatekeeper to the network.

“Swift is the way the world moves value” is the tagline of the network, and it is 100% true. They don’t move money, they don’t move assets; they move the promises and contracts of banks and their clients. This is a hugely important distinction that circumvents the requirement to become a money transmitter and requires them to get additional certifications, licenses, and abide by additional international regulatory compliance rules. They have built up a massive network of financial institutions over the last 50 years. However, there has been little innovation in that time. The world is ready for a new way to move value that is faster, easier, cheaper, secure, and private. The world is ready for Polybase.