MT700 SWIFT Message Explanation: Format, Usage, and Key Benefits in International Trade

The MT700 SWIFT message is a standardized format used in international trade to issue a letter of credit. SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a global messaging network used by banks and financial institutions to securely transmit information and instructions. The MT700 message type is specifically designed for issuing documentary credits, which are essential instruments in international trade finance.

What is an MT700 SWIFT Message?

An MT700 SWIFT message is a type of SWIFT message used for issuing a documentary letter of credit. A letter of credit (LC) is a guarantee from a bank that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make a payment, the bank will cover the full or remaining amount. The MT700 message format is critical because it ensures that the details of the letter of credit are communicated in a standardized way across different banks and financial institutions around the world.

Why is the MT700 SWIFT Message Used in International Trade?

1. Risk Mitigation: The primary purpose of a letter of credit is to mitigate the risks associated with international trade. It provides a guarantee to the seller that they will receive payment as long as they meet the terms specified in the LC.
2. Trust and Assurance: The MT700 message format ensures that all parties involved—buyer, seller, and their respective banks—have a clear understanding of the terms and conditions of the trade. This standardization helps build trust and provides assurance that the transaction will proceed smoothly.
3. Legal Compliance: Letters of credit issued via MT700 messages comply with international trade laws and regulations, such as the Uniform Customs and Practice for Documentary Credits (UCP 600), which standardizes the issuance and handling of LCs globally.

Benefits of Using the MT700 SWIFT Format

1. Standardization: The MT700 message format standardizes the information exchange between banks, reducing misunderstandings and errors.
2. Security: SWIFT messages are highly secure, reducing the risk of fraud in international transactions.
3. Efficiency: Using a standardized message format like MT700 speeds up the process of issuing and handling letters of credit, making international trade more efficient.
4. Global Reach: The SWIFT network is used by thousands of financial institutions worldwide, facilitating global trade.

Sample MT700 SWIFT Copy

Below is a simplified example of an MT700 message:

:27: Sequence of Total
1/1
:40A: Form of Documentary Credit
IRREVOCABLE
:20: Documentary Credit Number
LC123456
:31C: Date of Issue
230630
:31D: Date and Place of Expiry
231231USA
:50: Applicant
ABC IMPORTERS INC
:59: Beneficiary
XYZ EXPORTERS LTD
:32B: Currency Code, Amount
USD100000
:41D: Available With… By…
ANY BANK BY NEGOTIATION
:42C: Drafts at…
90 DAYS SIGHT
:44A: Place of Taking in Charge
NEW YORK
:44B: Place of Final Destination
LONDON
:45A: Description of Goods and/or Services
ELECTRONIC COMPONENTS AS PER PROFORMA INVOICE 1234
:46A: Documents Required

1. SIGNED COMMERCIAL INVOICE IN 4 COPIES
2. PACKING LIST IN 2 COPIES
3. CERTIFICATE OF ORIGIN
   :71B: Charges
   ALL BANKING CHARGES OUTSIDE USA ARE FOR BENEFICIARY’S ACCOUNT
   :48: Period for Presentation
   21 DAYS AFTER DATE OF SHIPMENT

Explanation of Each Field

1. :27: Sequence of Total – Indicates the sequence of the message within a series.
2. :40A: Form of Documentary Credit – Specifies the type of credit, such as irrevocable.
3. :20: Documentary Credit Number – Unique identifier for the letter of credit.
4. :31C: Date of Issue – The date the letter of credit is issued.
5. :31D: Date and Place of Expiry – Expiry date and location for the letter of credit.
6. :50: Applicant – The party applying for the letter of credit (buyer).
7. :59: Beneficiary – The party in whose favor the letter of credit is issued (seller).
8. :32B: Currency Code, Amount – The currency and amount of the credit.
9. :41D: Available With… By… – The bank where the credit is available and the method of payment.
10. :42C: Drafts at… – Specifies the terms for drafts, such as 90 days sight.
11. :44A: Place of Taking in Charge – Location where goods are handed over for transport.
12. :44B: Place of Final Destination – Final destination of the goods.
13. :45A: Description of Goods and/or Services – Detailed description of the goods or services covered by the letter of credit.
14. :46A: Documents Required – List of documents required for payment.
15. :71B: Charges – Specifies who is responsible for banking charges.
16. :48: Period for Presentation – Timeframe within which documents must be presented.

Future Developments

As international trade continues to evolve, so do the tools and technologies that support it. Here are some anticipated developments for the MT700 SWIFT message format and letters of credit:

1. Digital Transformation: The move towards digital trade finance is gaining momentum. Digital letters of credit and the use of blockchain technology can increase efficiency and reduce fraud. Electronic bills of lading and other digital documents are becoming more common.
2. ISO 20022 Migration: SWIFT is transitioning to the ISO 20022 standard, which will enhance the richness and quality of data exchanged in financial messages. This migration will affect all SWIFT message types, including MT700, by providing more structured and comprehensive data.
3. Enhanced Automation: With the integration of AI and machine learning, the processing of letters of credit can become more automated, reducing the time and cost associated with manual checks and validations.
4. Sustainability Initiatives: There is a growing emphasis on sustainable trade finance. Banks and financial institutions are increasingly considering environmental, social, and governance (ESG) factors when issuing letters of credit, promoting sustainable practices in global trade.

Conclusion

The MT700 SWIFT message plays a crucial role in international trade by facilitating the issuance of letters of credit. Its standardized format ensures clear communication between banks and other parties involved in the transaction, thereby reducing risks and increasing efficiency. The future of MT700 looks promising with digital transformation, enhanced automation, and the adoption of new standards like ISO 20022, making international trade more secure and efficient. As global trade continues to evolve, the MT700 SWIFT message will remain a cornerstone of trade finance, adapting to meet the needs of a dynamic market.

You can also check out below explanation video in youtube for better understanding –