Roughly forty years ago, the banking system did not have a secure and reliable messaging system. Around that time, communication technologies had matured to some extent but things weren’t exactly smooth owing to a number of limitations. The primary limitation was that there was a lack of standards that were used to communicate among banks. Each and every bank had its own way of communicating with other banks and this led to a lot of confusion.
In some cases, the larger banks would force other banks to follow their protocol, while even more banks could not do business at all because they were unable to electronically send information in a secure and reliable fashion. All these were identified as problem the organization, a group of people headed by Carl Reuterskiöld, who founded the organization in 1973. The primary objective of this organization was to improve upon all the limitations that were present in the then prevalent telex systems.
The telex systems were used prior to SWIFT, simply because there wasn’t a better option. There were three major areas of concern with the telex system. It was extremely slow, performed manually and had a lot of issues with information security. Transactions need to happen fast and when they happen at a snail pace, business grows slowly. This was pretty much the biggest flaw of the telex system in that every step took a long time because a person had to sit and manually do every aspect of the transaction.
Then there is the possibility of errors. Each and every step was done and had to be checked individually by a person. This means, human errors will always creep in. There was always a possibility of including more people to verification but there is simply no way to get rid of human error out of system. This led to a lot of problems but without any solution. That was until the SWIFT network kicked off operations in 1976, three years after its inception. Sending messages was a nightmare in the old telex system since there were a lot of people involved. However that problem was taken care of by the new and improved SWIFT system.
The basic concept of the SWIFT system was so impressive, with its unique SWIFT codes, secure messaging ecosystem that it provides, today every bank in the world uses the SWIFT network.