In the world of international banking, SWIFT messages play a key role in facilitating secure, standardized communication between financial institutions. Among the various types of SWIFT messages, MT202 and MT202COV are two related message types that are commonly used in fund transfers. While they share some similarities, they also have key differences that distinguish them in their usage, particularly in the context of correspondent banking and payments between financial institutions.
In this article, we’ll explore the main differences between MT202 and MT202COV, their functions, and when each is used.
What is an MT202?
An MT202 is a type of SWIFT message used by financial institutions to transfer funds between each other. The primary function of an MT202 message is to facilitate the payment orders or fund transfers between banks, typically for purposes like settling financial transactions, paying for services, or transferring large sums of money between accounts held at different institutions.
- Purpose: It is used for transferring funds between financial institutions.
- Sender/Receiver: The sender is typically a financial institution or intermediary bank, and the receiver is another financial institution or correspondent bank.
- Context: The MT202 is used in interbank transactions, such as settling interbank transfers or paying for securities transactions, where there is no direct involvement of a customer in the transaction. It is often used in cash transfers between banks.
One key characteristic of MT202 is that it is non-customer related, meaning it does not involve any details about the customer initiating the payment. It simply facilitates the movement of funds between banks.
What is an MT202COV?
The MT202COV is a variant of the MT202 message, and the “COV” stands for “Cover”. This message type is specifically designed to support customer payments that are sent through correspondent banks. While it may seem similar to the MT202, it has the crucial addition of a cover payment message, which ensures that the payment is linked to a customer transaction.
- Purpose: The MT202COV is used to initiate the transfer of funds between financial institutions for customer transactions, where a cover payment is required to ensure that the payment is associated with a customer-initiated transaction.
- Sender/Receiver: Like the MT202, the MT202COV is used between banks, but the key difference is that the message covers a customer’s payment.
- Context: It is used for transactions where one financial institution sends funds to another bank on behalf of a customer. A cover payment is a type of transaction where the bank sending the money (the “sending” bank) provides funds to cover the payment made by the customer at another institution (the “receiving” bank).
For example, when a customer makes a payment that needs to be processed through an intermediary bank or correspondent bank, the MT202COV is used to send the funds. The MT202COV contains a reference to the underlying customer transaction, making it a key tool for cross-border payments where the funds are moved through intermediary banks.
Key Differences Between MT202 and MT202COV
Although both MT202 and MT202COV are used for interbank payments, the distinction between them lies in the nature of the transaction and their role in customer payments.
- Customer Involvement:
- MT202: Used for interbank transfers without customer involvement. It is essentially used for financial institutions to settle payments, make adjustments, or transfer money between themselves.
- MT202COV: Used for customer-initiated transactions, where the transfer of funds is made on behalf of a customer. It carries a “cover” payment to ensure that the customer’s transaction is linked to the interbank transfer.
- Type of Payment:
- MT202: Primarily used for financial transactions between banks that are not directly linked to a customer, such as payments between correspondent banks or settlements for securities transactions.
- MT202COV: Used when customer payments (such as international remittances) are routed through correspondent banks. It acts as a covering payment for a customer-initiated transaction that is processed between the banks.
- Use Case:
- MT202: Used for more straightforward interbank transfers where there are no direct connections to customer details.
- MT202COV: Used when a bank needs to transfer funds related to a customer’s instruction, especially when the payment is routed via an intermediary bank or involves correspondent banking relationships.
- Message Structure:
- MT202: Does not contain information related to the customer’s underlying transaction.
- MT202COV: Includes details about the customer payment (for example, the transaction reference or details of the underlying remittance), which are needed for matching the cover payment with the customer’s transaction.
When is MT202COV Used?
The MT202COV is typically used in the context of cross-border payments where customers’ funds are transferred through intermediary or correspondent banks. For example:
- When a customer in the United States makes a payment to a supplier in the European Union, and the payment needs to be routed through intermediary banks, the bank in the U.S. will use the MT202COV message to send the funds. This message will carry details of the customer payment and ensure that it is linked to the underlying transaction.
It’s also used in cases where the sender and receiver do not have a direct relationship but need to settle funds through correspondent banking channels.
In summary, the difference between MT202 and MT202COV lies primarily in their relation to customer transactions. The MT202 is used for interbank transfers where no customer involvement is necessary, while the MT202COV is used for customer-related payments that are routed through intermediary banks. The inclusion of a “cover” payment in the MT202COV ensures that these payments are linked to the customer transaction, making it a crucial message type in the world of international finance and cross-border transactions.