how interbank payments are arranged

Short description

Interbank payments require agreements between banks to open accounts or correspondent accounts. Direct translations involve forming a power of attorney to transfer funds from Bank A to Bank B, with three conditions that must be met for an instant transfer. Central banks come to the rescue with a bank for banks, where all transfers are carried out internally. The SWIFT system, launched in 1977, transfers encrypted messages between financial organizations, allowing for direct transactions and cross-border translations. Other message transmission systems have been created in different countries, including China’s CIPS and Russia’s SPFS. Alternative methods such as fax or email are considered unreliable.

how interbank payments are arranged

In simple words, no one seriously discusses how interbank payments are arranged, why in the world, other than SWIFT, other financial message transmission systems and why the use of Telex, e-mail and fax.

Level 1 – calculations

Let’s start with the basic level – direct translations. In order to transfer funds from one bank to another, there must be agreements between them to open accounts. There is some analogy here with the accounts of individuals, but such accounts will be called correspondent accounts or corra accounts. If there are no reconciliations, calculations between banks at this level are impossible.

Interaction with corrahunkas consists of several steps. When the client of the bank wants to transfer money to the client of bank B, he forms a power of attorney. Three conditions are required for an instant transfer of money through it:

  • as a matter of fact, this money should be in bank B on the account of bank A opened there;

  • Bank A should ask Bank B to transfer the required amount from its bank account in this regard to the specified client of Bank B;

  • bank B must quickly fulfill this request.

To facilitate understanding, the scheme is simplified as much as possible. Logically, in Bank A, it is necessary to display the bank account of Bank B, on which 100 rubles is added. in accordance with the principle of double entry in accounting

This is a simplified description of the process. The main thing is that no one physically transports money anywhere. They are already on the account of the bank to which the transfer is addressed. When the account is empty, the transfer will not go through. Exceptions may be cases where there is a separate overdraft agreement between banks.

This scheme will work fine until there are too many banks – hundreds or thousands. Establishing relations between each bank and the rest is a difficult task.

Level 2 – option with a central bank

In the case of a large number of participants within one country, central banks come to the rescue. Usually, their role is performed by the main bank of the country or another authorized organization. In this scheme, all banks and other financial institutions open checking accounts there. It turns out a kind of bank for banks, where all transfers are carried out internally.

A transfer from a client of bank A to a client of bank B begins to look like this: bank A asks the central bank to transfer money from its account to the account of bank B and inform that this money is intended for a certain client whose account is indicated in the message. The central bank honors this request if bank A’s bank account is not empty. Bank B, having seen the money and messages that have arrived on the account, replenishes the account of the specified client.

The central bank in this scheme acts as a payment system, as it moves money between bank accounts.

It was this scheme that was the main one in many countries until there was a massive need for cross-border translations. At the beginning of the zero years in Russia, the problem of slow processing of payments by the Central Bank was added to this task. In particular, she was mentioned in the magazine “Finance and Credit” No. 41 (329) for November 2008. As a result, both breaches were closed by the SWIFT system, which in 2006 handled 80% of interbank payments within the country! Russia was then in second place in the number of system users (475) after the United States.

Level 3 – SWIFT

SWIFT is a system for transferring encrypted messages between financial organizations. In a simplified sense, it is a messenger or a communication platform. It allows transactions to be carried out directly, bypassing central banks and, more importantly, cross-border transactions.

SWIFT was launched in 1977 in Brussels with the support of 240 banks from 15 countries. Before SWIFT, all messages were transmitted by telex and processed manually in some places, which, in addition to the low speed of processing, led to numerous errors. The advantages of SWIFT lie in the active use of computers, cryptography, authentication, standardization of formats and messages and their automatic processing.

Albert, Prince of Belgium, sends the first message via the SWIFT system

In essence, SWIFT takes us back to a disparate settlement scheme, where the order is transmitted through an automated computer system.

SWIFT has nine message categories. One of them is customer payments, of which there are dozens of types and formats. Here, for example, you can open checking accounts with other banks. There are also categories of work with securities, letters of credit, confirmations of interbank agreements, Forex. The average transmission time of a regular message is about two minutes, during which multiple mutual confirmations of delivery take place.

Of course, SWIFT has its drawbacks. First, the system is controlled by the Western community: after the terrorist attacks of September 11, 2001, the US Treasury received full access to it, ostensibly to fight international terrorism.

Secondly, connecting to the system is quite expensive. According to some data, about $100,000 had to be paid for the installation of equipment, the purchase of software and the training of employees in the middle of the zeroes. Banks pay an average of 18 euro cents for the transfer of each international message via SWIFT. Messages between Russian banks cost 3-6 euro cents. This is quite expensive considering the fact that banks can transmit hundreds of thousands of messages per day. Therefore, in many countries, they thought about creating their own systems, primarily internal ones.


These are all names of message transmission systems created and operating in different countries and regions: CHIPS (USA), ELLIPS (Belgium), TBF (France), CHAPS (Great Britain), SEPA (European Union), RTGS plus (Germany). The reasons for their appearance are indicated in the description of SWIFT’s shortcomings two paragraphs above – driving millions of transactions through a foreign and expensive system is not the most attractive option.

In 2015, China introduced its system for foreign trade operations, CIPS (Cross-Border Interbank Payment System). Through the connector, it supports the common ISO 20022 standard, but works only with one currency – yuan.

In North America, only one organization is connected to CIPS, and another 30 use it as an intermediary

The creation of CIPS had two goals: to spread the influence of the yuan in the world and to hide the relevant transactions from American eyes.


In 2014, Russia very quickly made all the necessary decisions regarding the creation of its own system, and in December, the FSFS (Financial Reporting System) was already working in test mode.

Its main feature is the reception of messages in the popular SWIFT and ISO 20022 formats, as well as free-format messages with attachments up to 5 MB. This is very convenient, because banks did not have to reconfigure their internal automatic systems for the new format, but only to redirect the data to another gateway.

In addition, there are very low tariffs. Since 2018, one message costs 1 ruble, and if the daily volume of transmissions exceeds the threshold of 500 messages, the price drops to 80 kopecks. It is 3-5 times cheaper than SWIFT.

Connecting to the SPFS looks relatively simple: a contract is signed, a special communication channel is established, software is installed that integrates with the ABS (automatic banking system), electronic signature keys, and so on. From the ABS, all data are downloaded to the installed software in XML format, which processes and sends them.

The scheme of sending and receiving messages when directly connected to the SPFS

If the system is deployed in a small organization, the software can be installed even on a simple Windows PC. It has an interface for manual loading of payments, which are also sent through the transport gateway of the Bank of Russia.

Messages are sent quickly – we are talking about minutes.

Can paper, telex and email be used now?

At the beginning of March, news leaked out that EU allowed banks, disconnected from SWIFT but not under blocking sanctions, to carry out international transactions using alternative methods such as fax or email. This is where all the questions about the relevance of these methods of transmission came from.

When a bank enters into an agreement with another financial organization, it always specifies the methods of transmission of messages and orders. Alternatives may include paper media, telexes, and remote banking systems. Email and fax are considered unreliable channels and are practically not used.

Telex, de facto, has also become a thing of the past. Most European banks may simply not remember what it is.

In Russian banks, you can find telex message transmission systems that work via the Internet. Most of them are likely to function through REX400, a universal platform that delivers messages in different formats and to different devices. However, it is not worth counting on its integration with modern ABS of banks, because the time of such systems has passed.

Just in case, let’s say a few words about Telex. This is an international network of telegraph machines – teletypes. Before SWIFT, all the work was entrusted to them. The operation of one such device – Siemens T1000S – can be viewed in this video.

But the paper format is formally alive. For example, in the SPFS tariff table, there is an option for paper transfer, the processing of which costs 350 kr.

But be that as it may, no one is going to seriously discuss these alternative transfer options.

Brief summaries

One of the main points is that no one physically transports money anywhere in trucks. All calculations are carried out electronically by all kinds of offsets and transfer of balances. This is a simplified explanation, in fact there are many nuances and complexities here.

In addition to conventional SPFS and SWIFT, there are dozens of other systems in different countries that also transmit messages. How these messages will be processed by the recipient and what actions he will take (ignore, execute, reject) depends on the concluded interbank contracts or contracts with the systems.

Systems can transmit not only information about payments, but also any other information that falls within the standard framework. At least MP3 can be sent through SPFS, it would make sense. In addition to monetary transactions, trade operations are carried out with the help of it, correspondence with investigations is carried out, agreements are made on securities, letters of credit and on what financial organizations work with.

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