Deciphering the SWIFT MT messages for Payments
Under the series of Fundamental of Payments, here is the third article that would decipher the MT series. This would set the base before we understand the conversion from MT series to MX
In the last article, I have explained about the different message formats which are being used across the different payment systems. Now, on the request of audience and to go a little deep into this world of message formats, I have picked up the SWIFT message system. In this article, we would decipher the current MT (Message Type) message format. And in the subsequent articles, we will understand and work out an approach on how to convert MT series to ISO20022 along with the benefits of it.
Well, let me clear the first myth - SWIFT is not a payment system but a messaging system that has connected the Financial Institutions across the world. It has covered more than 200 countries and more than 10k institutions are connected over it.
Nearly, 50% of the transactions are payments - consumer & corporate and around 47% of the transactions are securities.
SWIFT issues BIC (Business Identifier Code) to the members which acts as a primary key over the network. This is also known as SWIFT code. Generally, it is 8-11 digits long that tells us about the institution name, country of existence, city, branch etc.
Now, SWIFT has 0-9 series of messages. Let me summaries it for you over here.
Series 1 for customer payments (consumer & corporate)
Series 2 - Inter bank transactions
Series 3 - Money or foreign transactions
Series 4 - Collections or Letter of Credit
Series 5 - Securities
Series 6 - Precious metals
Series 7 - Documentary letter of credit
Series 8 - Traveler’s check
Series 9 - Account & statement information
‘X’ in MTXYZ would tell about the series for which a particular message is bring structured.
Let’s take my favorite MT 103 as a consideration to understand how the message is being structure. MT103 is used as payments instruction or signal for upcoming payments among the financial institutions.
Now, every MT message has 5 blocks. Let’s understand them.
Block 1 is known as Basic Header; it is created by the Fin application.
It looks like -
{1 : F 01 BOFAUS6S Z SFX 1234 567890} - Let’s decipher it.
1 - block identifier
F - Application Id
BOFAUS6S - BIC of the sender institution
Z - Logical termination code
1234 - Session number
567890 - Sequence Number
Block 2 is knows as Application header. It contains the information which is necessary for the messages sent from a user to another user or from user to systems. Let’s decipher it.
{ 2: O 103 MLCOU3G X DRV U 3 003}
2- Block identifier
O - it means output message; it’s initiated from a sender to the network
103 - message type
MLC… - Recipient BIC
X - logical terminal code
DRV - branch
U - it means urgent; there are other options
3 - sequence number
003 - notification period; it has other options; depends on time interval
Block 3 is called as ‘User Header’ and it is present in the instruction where value goes with the message such as MT103 or MT202 etc.
{3: {103 : TGT}}
Block 4 is the ‘Text Block’; it contains the data that is sent along with the instruction such as amount, charges, address etc. It has different fields in it.
{4:
:20 : 12345
:32A :
………
:71A } - All of these fields have a particular meaning and it needs to be defined or inserted properly to make sure that no error code would come.
Each of these fields have limitations in terms of number of characters come and the detail of information which can be sent along with the instruction.
Block 5 is the trailer block which is used to send extra information for the message such as checksum value or other security related information.
{5 : {CHK : DF5678HG}}
As I have briefly mentioned, there are certain rules which need to be followed otherwise error code would come. Also, network does not have error codes for every rule so there are checks which financial institutions have built at their end to make sure that the messages are read or sent correctly. These rules are generally termed as ‘Usage Rules’.
SWIFT also has an authorization application which is known as RMA (Relationship Management Application) in which rules have been defined with respect to communication among the institutions over the network. The RMA over a period of time got enhanced to RMA Plus which has taken the same concept of authorization to the message level such as which FI can send what kind of message to the other FI. This application maintains the hygiene of the network from the overload. There is an exception to this - series 3,6 and 9 are out of RMA defined rules.
Trust, this article would have given you the understanding of the MT messages. Next article will go in detail of ISO20022 and how it will change the payment ecosystem.
Thanks
Jaspal Singh