SWIFT Exclusion: What It Means for German Companies and E-Commerce [5 Reading Tips]

SWIFT Exclusion Reading Tips — Source: Unsplash/Dustin Tramel

IBAN rings a bell with most people. So does BIC. But what exactly is SWIFT? While IBAN means International Bank Account Number, BIC stands for Bank Identifier Code. SWIFT is the system that banks use to communicate internationally. Russian banks were also part of this banking communication network – until two weeks ago.

On Monday, the 28th of February 2022, the 27 EU member states – together with the USA, Canada, Great Britain and Japan – decided to exclude many Russian financial institutions from SWIFT, thus isolating them from the global financial market. This is an important element of Western sanctions against the country, whose army had invaded Ukraine a few days earlier and has since been waging war against its neighbour. The exclusion puts Russia under pressure, but what does it mean for Germany and the Western world? And what does it mean for international e-commerce?

SWIFT: The Network for Global Financial Transactions

SWIFT stands for »Society for Worldwide Interbank Financial Telecommunication« – an international network for exchanging electronic information. Via the technical infrastructure, financial institutions worldwide can communicate with each other when transferring money.

The SWIFT network consists of around 11,000 banks, investment firms and companies in more than 200 countries. Banks use SWIFT codes to send money, but also to exchange messages. The system records around 40 million transfers a day.

For the affected Russian banks, companies and financial authorities, the exclusion means that they can no longer make international payments or receive payments from SWIFT countries. So far, however, not all but only some Russian banks have been excluded from the network. Additional sanctions against further banks and against the Russian Central Bank are planned – it is unclear when they will be imposed.

SWIFT Exclusion of Russia Also Has Consequences for the German Economy

Complex Payment Processing

However, the sanctions not only have consequences for Russia, but also for German companies: VW, Bosch, Siemens Hausgeräte and METRO have currently invested about 24 billion euros in Russia – to name just four enterprises doing business there. Since not all Russian banks have been excluded from the payment system yet, these companies as well as their partners and customers can still resort to alternative banks.

However, this is complicated and costly. If it becomes even more difficult to process payments involving Russian partners and suppliers, these companies will withdraw from Russia. VW already announced this step on Wednesday, the 3rd of March. Other Western companies such as ALDI, Mercedes, IKEA and Apple also want to cut or reduce business relations with the geographically largest country on earth.

Drop in Orders

As a result of the war and changing economic relations, the rouble is in free fall. At the end of February, the rating agency Standard & Poor’s downgraded Russia’s credit rating to CCC-, which is only just above the category for insolvency.

The consequence: even if the conflict were to be resolved quickly, contrary to expectations, the standard of living in Russia would decline in the long term. Since Russian customers can no longer afford German export products, they will first of all cancel existing orders, which will also adversely affect the German economy in the short term.

Tipping the Scales in the Energy Industry

In the last few days, however, there has mainly been one topic of discussion in Germany: the issue of energy supply. Russia is one of the largest energy producers in the world. The EU imports around 40 per cent of its gas from Russia, Germany even slightly more than 50 per cent.

Robert Habeck (Greens), Federal Minister for Economic Affairs, and Christian Lindner (FDP), Federal Minister of Finance, recently emphasised that Germany was willing to bear the negative consequences of the SWIFT sanctions as well. Affected companies are to receive state support if they experience significant drops in sales.

The E-Commerce Factor

While there are discussions about energy dependence on Russia, the situation is basically the other way round in e-commerce. Online business is also booming in Russia – especially with Western goods.

Since 2017, the Wildberries platform has been considered the biggest player. It mainly sells clothing, electronics, toys, decorations, furniture and tools from well-known Western brands – the Moscow-based platform generates sales of around 4.9 billion euros a year.

Wildberries will not only experience a declining flow of goods as a result of the war and the sanctions, but also see a drop in demand due to the economic crisis threatening Russia.

For German bargain hunters, it is worth knowing this; after all, Wildberries entered the German market in mid-2021 and launched its third website within the EU after those in Poland and Slovakia. You can still order countless products there. But at what price?