The SWIFT is an organization that is responsible for the maintaining a network that allows for secure and reliable communication between banks. The organization came into existence almost forty years ago in the year 1973 and is now used by every bank in the world.
The way SWIFT works is by making available the technology to all member banks on how they can communicate with each other. Let us consider that all the banks are unique individuals, which is indeed the case. Each bank will be doing business with its customer on the customer facing side of banking. On the business side of banking, each bank will have to deal with every other bank in the world. This is so because; commerce has never been limited to a single nation.
Even before the dawn of electronic communication technologies, trade was happening across nations. Now, it has only become faster and simpler to do financial transactions over interconnecting networks. However, banks deal with a lot of financial information and there is simply no room for errors. Before this particular network was in place, banks usually had to setup their own network with all the other banks and commit to business.
This lead to a lot of redundancy and wastage of resources everywhere! The SWIFT organization decided to help banks do better business with a standardized communication protocol Once a bank becomes a member of the SWIFT network, the first thing that happens is the assignment of a SWIFT code. No two banks will have the same SWIFT codes. Every time one bank has to refer to another bank, they will be using the SWIFT codes. The same goes to their customers too.
The SWIFT organization promises that the information will be sent reliably and in a secure fashion. These are the two features that are prominent for every bank in the world. Since the system is standardized, every member bank knows that every other member can do what is promised by the SWIFT network. This makes everything simple for everybody, allowing a more efficient banking system.
At the end of the day, the eventually beneficiary is the user of the banking system, which is every day folks like you and us. Many of us have a need to transact with folks who are out of country and if not for the SWIFT code, there would a lot of concern about payments going to the right bank and right account number.