Swift, or the ‘Society for Worldwide Interbank Financial Telecommunication’, is a secure messaging system that facilitates rapid cross-border payments, making international trade flow smoothly.
Banks that connect to the system and establish relationships with other banks can use Swift messages to make payments.
The messages are secure so that payment instructions are typically honoured without question. This allows banks to process high volumes of transactions at speed.
It has become the principal mechanism for financing international trade. In 2020, around 38 million Swift messages were sent each day over the platform, according to its 2020 Annual Review.
Each year, trillions of dollars are transferred using the system.
Swift, founded in the 1970s, is a co-operative of thousands of member institutions that use the service.
Based in Belgium, it makes a modest profit $36 million in 2020. It is run principally as a service to its members.
Excluding Russian banks from Swift will restrict the country’s access to financial markets across the world.
Russian companies and individuals will find it harder to pay for imports and receive cash for exports, borrow or invest overseas.
Russian banks could use other channels for payments such as phones, messaging apps or email. The would allow Russian banks to make payments via banks in countries that have not imposed sanctions but since alternatives are likely to be less efficient and secure, transaction volumes could fall and costs rise.
Exporters will find selling goods to Russia riskier and more expensive.
Russia is a big buyer of manufactured goods. The Netherlands and Germany are its second and third-biggest trading partners, based on World Bank data, although Russia is not a top 10 export market for either country.
Foreign buyers of Russian goods will also find it more difficult, potentially prompting them to seek alternative suppliers.
But when it comes to Russian oil and gas, foreign buyers could find it harder to find replacement suppliers.