SWIFT codes are primarily used by banks, by extension their customers to perform financial transactions across the globe. The SWIFT organization is responsible for two items – SWIFT codes and the SWIFT network. The SWIFT code is a unique number that is assigned to banks to allow them to communicate, on behalf of their clients. The SWIFT network also provides for the network infrastructure that allows these banks to communicate with each other with guaranteed security. The network also offers unparalleled reliability that is essential for any financial transaction.
The need for the SWIFT codes as well as the SWIFT network came into existence because of the problems that existed with the prior system used by banks. Before the birth and widespread implementation of the SWIFT network, the network that was used was the telex system. The differentiation factor between telex and SWIFT was that human error was an integral part of telex system.
The telex relied heavily on the skills of the banking employee to ensure that the proper financial transaction took place. The error checking mechanism that was in place was also done manually. No matter how perfect a single employee is, as a group, it is impossible to eliminate human error. Considering that every day millions of transactions takes place, one only needs to multiply this huge number with that of the average human error to understand the magnitude of the problem.
The SWIFT code, as used by banks today all over the world, did two things to fix the major issues that were found in the telex system. With the new system, error checking was now being by the computer network. Since computers do not make mistakes, as long as they were given the right information, the error factor was brought down to extremely low values. The telex relied on the integrity of its manual messaging systems to transmit information, which was suspect to a lot of information leak and misuse.
SWIFT relied on electronic communication and security protocols to ensure that the message transmission is completely secure. Also, the network put in redundancy protocols so that its reliability is extremely high. Overall, the SWIFT network has been very successful with every bank that operates anywhere in the world becoming a member. The SWIFT codes make life easy for its users and enable financial transactions that are not only secure but also fast.