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The New Language of Payments: SWIFT and ISO 20022 đź“ť

#payments #crossboarderpayment #swiftpayment #iso20022

SWIFT/Wire transfers

An international wire transfer is simply an electronic transfer of money via a transfer service or bank that starts in one country and is settled in another.

Most wire transfers happen through the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network. The SWIFT network is a messaging protocol. This network has over 11,000 banks in 200-plus countries. It assigns every bank a unique identifier code to ensure the transfer always gets to the intended recipient.

According to the US Treasury, SWIFT(a send and receive agent for international payments) handles about $5 trillion per day. Given that SWIFT operates about 250 days per year, approximately $1.25 quadrillion dollars is transferred globally every year.

What details are needed for an international bank transfer?

Standard Details Required for International Bank Transfers

Who Owns the SWIFT system?

SWIFT, a global financial messaging cooperative owned by its member institutions, is overseen by G-10 central banks (including Belgium as lead and the US Federal Reserve). Due to its base in Belgium, SWIFT must comply with EU regulations, Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF).

Here’s a clear, Step-by-Step Breakdown of how a SWIFT payment works—from initiation to settlement

  • Payment Initiation

    • A customer or business requests an international transfer from their bank.
    • Required details: recipient name, account number/IBAN, SWIFT/BIC code, bank name, currency, and purpose.

  • Message Creation

    • The sender’s bank generates a SWIFT message (e.g., MT103 for customer credit transfer).
    • This message includes all transaction details in a standardized format.

  • Currency conversion

    • The sender’s bank may convert the local currency into the recipient’s currency before initiating the transfer. The exchange rate applied often includes a markup over the mid-market rate.
    • If the sender’s bank doesn’t have a direct relationship with the recipient’s bank, the payment may pass through correspondent banks, which can also apply conversion fees
    • If the funds arrive in a different currency than the recipient’s account, the recipient’s bank will convert it—often at their own exchange rate, which may include additional fees.

  • Secure Transmission

    • The message is encrypted and sent via the SWIFT network to the recipient’s bank.
    • If no direct relationship exists, intermediary banks (correspondents) forward the message .

  • Compliance Checks

    • Each bank involved performs AML/KYC screening and regulatory checks.
    • Sanctions screening and fraud detection may delay or reject the transaction.

  • Fund Settlement

    • Actual fund movement happens via Nostro/Vostro accounts between banks.
    • If cover payments are used, an MT202 or MT202COV message may accompany the MT103.

  • Acknowledgment & Confirmation

    • The recipient’s bank confirms receipt and credits the beneficiary’s account.
    • A confirmation message (e.g., MT199 or MT210) may be sent back to the sender’s bank.

  • Reconciliation

    • Both banks reconcile the transaction using internal systems and SWIFT acknowledgments. This ensures accurate accounting and compliance with reporting standards.

Security & Compliance

  • Encryption & Authentication: Ensures secure transmission.
  • Customer Security Programme (CSP): Mandatory controls for SWIFT members.
  • Regulatory Compliance: FATCA, GDPR, PSD2, and more.

Alt text

MT103 Message Structure Overview

The MT103 is a standardized SWIFT message format used for Single Customer Credit Transfers, typically in international wire payments. It contains all the essential details for processing a cross-border transaction between banks.


:20:REF123456789
:23B:CRED
:32A:250723USD10000,00
:50K:/1234567890
JOHN DOE
123 MAIN ST, NY
:59:/9876543210
JANE SMITH
456 MARKET ST, LONDON
:70:INVOICE 998877
:71A:SHA
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This example shows a $10,000 USD transfer from John Doe in the U.S. to Jane Smith in the UK, referencing an invoice.

MT103 vs MT202 vs MT940

Real-World Use Case

Imagine a customer in India sends $10,000 to a supplier in Germany:

  • The bank sends an MT103 to initiate the transfer.
  • A corresponding MT202 may be sent between intermediary banks to settle the funds.
  • The customer’s bank sends an MT940 at day’s end showing the debit transaction.

ISO 20022

ISO 20022 is a global standard for financial messaging that’s transforming how payment systems communicate.
Developed by the International Organization for Standardization (ISO), ISO 20022 defines how financial messages (like payment instructions) are structured and transmitted.

It uses XML syntax to carry detailed, structured data—far more than older standards like ISO 8583 or SWIFT MT messages

Financial institutions worldwide are transitioning to ISO 20022. SWIFT, for example, is phasing out legacy formats and pushing for full adoption by November 2025

MT to MX translations

New Data Requirements in ISO 20022

ISO 20022 introduces structured, standardized fields to improve clarity and compliance

Why These Changes Matter

Sample pacs.008 XML Snippet (Simplified) 

<AppHdr xmlns="urn:iso:std:iso:20022:tech:xsd:head.001.001.02">
    <Fr>
        <FIId>
            <FinInstnId>
                <BICFI>CHASDEFXXXX</BICFI>
            </FinInstnId>
        </FIId>
    </Fr>
    <To>
        <FIId>
            <FinInstnId>
                <BICFI>CHASGB2LXXX</BICFI>
            </FinInstnId>
        </FIId>
    </To>
    <BizMsgIdr>P5607186 298</BizMsgIdr>
    <MsgDefIdr>pacs.008.001.08</MsgDefIdr>
    <BizSvc>swift.cbprplus.02</BizSvc>
    <CreDt>9999-12-31T00:00:00+00:00</CreDt>
    <Prty>NORM</Prty>
</AppHdr>
<Document xmlns="urn:iso:std:iso:20022:tech:xsd:pacs.008.001.08">
  <FIToFICstmrCdtTrf>
    <GrpHdr>
      <MsgId>TXN20250723-001</MsgId>
      <CreDtTm>2025-07-23T18:15:00</CreDtTm>
      <NbOfTxs>1</NbOfTxs>
      <SttlmInf>
        <SttlmMtd>CLRG</SttlmMtd>
      </SttlmInf>
    </GrpHdr>
    <CdtTrfTxInf>
      <PmtId>
        <InstrId>P5607186 298</InstrId>
        <EndToEndId>INV-998877</EndToEndId>
        <UETR>00000000-0000-4000-8000-000000000000</UETR>
      </PmtId>
      <Amt>
        <InstdAmt Ccy="USD">10000.00</InstdAmt>
      </Amt>
      <ChrgBr>SHA</ChrgBr>
      <Dbtr>
        <Nm>John Doe</Nm>
        <PstlAdr>
          <StrtNm>Main Street</StrtNm>
          <BldgNb>123</BldgNb>
          <TwnNm>New York</TwnNm>
          <Ctry>US</Ctry>
        </PstlAdr>
      </Dbtr>
      <DbtrAcct>
        <Id>
          <IBAN>US12345678901234567890</IBAN>
        </Id>
      </DbtrAcct>
      <DbtrAgt>
        <FinInstnId>
          <BICFI>BOFAUS3NXXX</BICFI>
        </FinInstnId>
      </DbtrAgt>
      <Cdtr>
        <Nm>Jane Smith</Nm>
        <PstlAdr>
          <StrtNm>Market Street</StrtNm>
          <BldgNb>456</BldgNb>
          <TwnNm>London</TwnNm>
          <Ctry>GB</Ctry>
        </PstlAdr>
      </Cdtr>
      <CdtrAcct>
        <Id>
          <IBAN>GB29NWBK60161331926819</IBAN>
        </Id>
      </CdtrAcct>
      <CdtrAgt>
        <FinInstnId>
          <BICFI>NWBKGB2LXXX</BICFI>
        </FinInstnId>
      </CdtrAgt>
      <Purp>
        <Cd>SUPP</Cd>
      </Purp>
      <RmtInf>
        <Ustrd>Invoice 998877</Ustrd>
      </RmtInf>
    </CdtTrfTxInf>
  </FIToFICstmrCdtTrf>
</Document>
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Key Sections Explained:

Summary

  • It's a universal language (XML-based) for financial data.

  • A core benefit of ISO 20022 is enhanced access to better-quality transaction data.

  • The Swift “Cross-Border Payments and Reporting” (CBPR+) program runs from March 2023 through November 2025, during which time Swift will migrate from MT messages to ISO 20022 MX messages.

  • March 2023: Coexistence period began, allowing financial institutions to send both traditional MT (Message Type) and new ISO 20022 (MX) messages for cross-border payments. SWIFT provided in-flow translation between formats.

  • November 22, 2025 (Critical Deadline): The coexistence period for payment instruction messages (like MT103 and MT202) officially ends. From this date, all cross-border FI-to-FI payment instructions must be sent in ISO 20022 (MX) format. Sending MT payment instructions may incur penalties or require a limited, costly translation service.

  • November 2026: Enforcement of structured address formats. Unstructured addresses will no longer be permitted in ISO 20022 messages. A hybrid address option will be introduced in October 2025, becoming the minimum requirement by November 2026.

  • November 2027: Retirement of MT-formatted exceptions and investigations messages, fully replaced by their ISO 20022 equivalents.

References

🧠 AI Assistance — Content and explanations are partially supported by ChatGPT, Microsoft Copilot, and GitLab Duo.

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