The SWIFT system has failed to moderate cross-border transactions and the inability of the outdated system to adapt to modern technologies calls for a new global payment paradigm.
When it was created, the Society for Worldwide Interbank Financial Telecommunications (SWIFT) was meant to be a simple concept – a network of connected financial institutions that can easily conduct transactions without too much interference from third parties. However, over the past few years, the SWIFT system has become an outdated shell of itself that has become too expensive and time-consuming to keep up with the global volume of cross-border transactions required.
Many solutions have emerged in an attempt to fix SWIFT and make it more reliable. However, with cryptocurrencies and other financial innovations being developed, now might be the perfect time to ditch this system.
Brief history of SWIFT
The SWIFT system was founded in 1973. Initially, it included more than 200 banks from around 15 countries. When it was created, the system was built to promote close and progressive financial cooperation between members. Today, however, the system is home to over 8,000 institutions from over 200 countries. The Association acts as an intermediary between institutions for multiple functions – including brokerage, banking and stock market transactions.
A SWIFT payment is essentially a transfer that allows a natural or legal person to make a payment in any currency to any bank in any country in the world. These transfers are made in different currencies and use the SWIFT system as an intermediary which processes these transactions in real time.
Why SWIFT Failed So Badly
Today, criticism of SWIFT continued to mount as the system appears to be growing increasingly outdated.
Many have also criticized the inefficiency of the SWIFT system, especially in the face of innovations that seek to change the way we view money transfers. Cryptocurrencies, digital payment services and many more have slowly reduced transaction volumes in the SWIFT system. So why is this?
Long financial transactions
The major problem with SWIFT seems to be speed. Compared to cryptocurrencies or systems like SEPA, a standard SWIFT transfer can take days to complete. To be fair, there are options for expedited same-day transfers, but the process is still too long. Although all of these options seem ideal, the problem is that they are paid options. – pay more money and your transaction is processed faster.
For a system that was designed to provide efficiency and transparency, the practice of forcing people to pay more to have their transactions processed faster might not be in the best interests of fairness. And as more financial institutions and people join the network, chances are it will continue to be ill-equipped to meet the growing needs of its many customers.
Money transfers themselves are expensive
An additional problem facing SWIFT customers and international financial agents is that these transactions themselves are expensive.
Today, customers have to pay a high price for the availability of SWIFT currency transactions. And, as many have pointed out, this cost is much higher than other channels like cryptocurrencies and SEPA transactions.
The cost is usually defined as a percentage of the transfer amount itself. But there is also a minimum value and a maximum value for the costs – these values are defined differently depending on the country.
In addition to transaction costs, customers also have to deal with rising intermediary costs, which can easily add up to significant sums over time. Which party pays this cost will depend on the splitting option chosen by all parties, although the decision will usually rest with the person initiating the transfers.
So, overall, the fees for SWIFT transfers are considerably high. And again, the fact that people have to pay so much to process some of their daily transactions with loved ones and business partners around the world is not necessarily ideal in a 21st century world.
It is time to move on
All these issues mentioned showed that the SWIFT transaction system has become too outdated to handle transactions in a 21st century world. The system has proven too slow and expensive to handle the global transaction volume required, and it is time for a new system to replace it.
The world has moved to a system where individuals and businesses must process transactions quickly and efficiently. And at a time when technology has brought everyone closer together, the fact that we all have to pay so much to send money across different borders means there is a need for more adoption of new technologies in the payments space. . The SWIFT system has not necessarily been the best option, and those looking for better service will need alternatives.
So how is this industry changing?
Mainly, the best option will be to look at cryptocurrencies. Since the advent of Bitcoin and other traditional cryptos, the technology has continued to thrive as a store of value and a way to send money across borders.
Of course, Bitcoin and traditional cryptocurrencies are volatile, and investors should be careful when dealing with them. But, with optimal speed, anyone can send Bitcoin anywhere in the world without relying on too many third parties involved.
If you’re worried about volatility, you can also access stablecoins – essentially, cryptocurrencies whose values are linked to traditional fiat currencies. With a stablecoin, you get the best of both worlds: the speed of cryptocurrency transactions and the stability of traditional currencies. As more and more people get excited about the internet age, cryptocurrencies are definitely a great option to try. With near-instantaneous transactions and low fees, cryptocurrencies are a more reliable method of payment and money transfer than the old and outdated SWIFT system.