Banks talk to each other for a variety of reasons, including to transfer funds between accounts, to exchange information about transactions, to confirm the validity of transactions, and to comply with regulatory requirements.
In order to communicate with each other, banks use a messaging system called SWIFT (Society for Worldwide Interbank Financial Telecommunication), which provides a standardized and secure way to exchange information.
There are several different types of SWIFT messages that banks use for various purposes.
Here is a brief overview of some of the messaging types that are commonly used in trade finance, letters of credit, and Uniform Customs and Practice for Documentary Credit (UCP):
11 SWIFT MTXXX message types used within trade finance
- MT700: This message is used for issuing a letter of credit. It is sent by the issuer of the letter of credit to the (first) advising bank which is most commonly beneficiary’s bank. It contains details of the letter of credit, including the terms and conditions, the parties involved, and the amount of the credit.
- MT707 – This message is used for amending a letter of credit. It contains details of the changes to the original letter of credit, including the new terms and conditions.
- MT710: This message type is used if the issuing bank can’t send the issuance of the letter of credit (MT700) directly to beneficiary’s bank and a second advising bank is needed. In that case the issuing bank can instruct the selected advising bank (the receiver of MT700) to advise the issuance further to the second advising bank. MT710 has the same structure and content as the original MT700 with some additional fields for first advising bank’s reference and issuing bank’s details.
- MT720: This message is used for transferring a letter of credit. This message is used if the beneficiary of the original letter of credit needs to transfer the credit amount or most commonly part of it to the third party. In that case the transferring bank sends the details of the original MT700 with the needed changes that are regulated by UCP rules to second beneficiary’s bank with this message type.
- MT734: This message is used for discrepant document presentations under a letter of credit. It is sent by the issuing bank to the beneficiary’s bank to notify them that the documents presented do not comply with the terms of the letter of credit.
- MT742: This message is used for claiming reimbursement for the complying presentation by the beneficiary’s bank if allowed by the issuing bank in the letter of credit conditions.
- MT760: This is the SWIFT message contains the details of an undertaking (demand guarantee or a standby letter of credit) such as the terms and conditions, the parties involved, and the amount of the undertaking. The sender of this message can have multiple different roles. It can be the issuer of an undertaking or counter-undertaking or a bank advising an undertaking to the next advising bank. The exact content of the message needs to be checked to define the role. This is different from the issuance of a letter of credit in which there are different message types for each variation.
- MT767: This message is used for an amendment to an undertaking. It contains details of the changes to the original undertaking, including the new terms and conditions.
- MT765: This message is used to demand a payment under an undertaking and may include a request to extend the expiry date
- MT759: This message is an ancillary message that is used when no specific message type is defined. This is more structured than a free format message and it contains the type of the instrument that it refers to and also the function of the message. It can also be used to issue and amend a dependent undertakings.
- MT799: This is a free format message used for unstructured correspondence between banks.
3 other SWIFT Messaging Types that are seldom used
- MT701: This is a continuation message for the MT700. Sometimes narrative fields in the primary letter of credit issuance (MT700) are not lengthy enough and more text is needed. Up to seven MT701-messages are allowed in addition to initial MT700.
- MT711: If the original letter of credit issuance contained continuation messages (MT701) in addition to MT700, these continuation messages are advised to the second advising bank with this message type.
- MT798: This is a bank to corporate message and consists of variety of sub-messages that cover the life-cycle events of letters of credit, demand guarantees and standby letters of credit.
These are just a few examples of the many different types of SWIFT messages that banks use to communicate with each other in trade finance, letters of credit, and UCP. Each message type has a specific purpose and contains specific information, which helps banks to exchange information in a standardized and efficient manner.
Updates to SWIFT MT760 and MT767 for 2021
There are several proposed changes to the new and updated SWIFT messaging standards, specifically MT760 and MT767, that are changing in November 2021. Here are some of the key updates:
- MT760: The new version of MT760, which is used for standby letters of credit, will include updated fields and options to support electronic documents, such as electronic bills of lading. The updated version of MT760 will also allow for multiple drawdowns under the same standby letter of credit, which will simplify the process for banks and their customers.
- MT767: The updated version of MT767, which is used for guarantees, will also include updated fields and options to support electronic documents. In addition, the new version of MT 767 will allow for partial releases of guarantees, which will provide greater flexibility for banks and their customers.
- Harmonization of fields: Both MT760 and MT767 will be updated to align with other SWIFT messaging standards, including MT700 (used for letters of credit) and MT758 (used for demand guarantees). This harmonization will make it easier for banks to process and reconcile different types of financial messages.
- Digitalization: The updated versions of MT760 and MT767 will also support the growing trend towards digitalization in the banking industry. The new messaging standards will allow for the use of digital signatures and authentication methods, which will increase security and streamline the processing of financial messages.
Overall, these updates to the SWIFT messaging standards reflect the ongoing evolution of the banking industry and the increasing importance of digitalization and electronic documentation. By providing greater flexibility and support for electronic documents, the updated standards will help banks and their customers to more efficiently and securely manage their financial transactions.
SWIFT messaging types for bank to bank financing do, however, face some challenges within the industry, including limited optionality and standards. Some of the key drawbacks are:
- Limited optionality: SWIFT messaging types are designed to provide a standardized format for communicating financial messages between banks. While this standardization ensures that messages can be processed and understood by different financial institutions, it also means that the options for customization and flexibility are limited. Banks may find it difficult to include specific details or requirements in their messages that are not covered by the standard format.
- High cost: While SWIFT messaging is widely used in the banking industry, it can be expensive for banks to implement and maintain. There may be fees associated with using the SWIFT network, and banks may need to invest in specialized software and infrastructure to support SWIFT messaging.
- Lack of real-time processing: SWIFT messages are processed in batches, which means that there may be a delay of several hours or more between the time a message is sent and the time it is received and processed by the recipient bank. This can be a disadvantage in situations where real-time processing and settlement are required.
- Limited integration with other systems: SWIFT messaging types are primarily designed to be used within the banking industry, and may not integrate well with other financial systems or technologies. This can make it difficult for banks to integrate SWIFT messages with other types of financial data, such as trade finance or supply chain financing.
Overall, while SWIFT messaging remains a widely-used and important tool for bank-to-bank financing, there are some limitations and drawbacks to consider when choosing a messaging solution. Banks may need to weigh the benefits of standardization and widespread adoption against the potential costs and limitations of the SWIFT system.
This article was edited on 6 March 2023 to split out the seldom-used messaging types, and further clarify the use cases for some messaging types.
TFG would like to thank the contributions of Saila Alapiha, Senior Product Owner at OP Financial Group and the Standardised Trust for their editorial contributions to this article.