What would happen if the world's largest electronic payment system suddenly stopped working at a large number of financial institutions in your country? That happened last month when 19 Iranian banks and 25 affiliated institutions were disconnected in an unprecedented move from the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network as part of U.S. and European Union sanctions to "pressure Iran into curbing its nuclear program," as stated by this Reuters story on the action.
While the "outage" in Iran was deliberate, at 0200 local New Zealand time Wednesday, the SWIFT payment system into that country suffered a technical "glitch" that significantly impeded its use, various New Zealand news media reported. Every New Zealand bank and other organization using the SWIFT system was affected (some reported it as an outage). As a result, several thousand electronic banking transactions across the country were not able to be completed. Many New Zealanders were unhappy to discover that their salaries had not been deposited into their checking or savings accounts, according to this story at the Dominion Post.
The cause was not immediately clear, but by 1000 local time, the SWIFT system was working again and by 1700 SWIFT reported that most of the payments that had been held up had now gone through, although some payments would be completed until today.
The importance of SWIFT to a country's financial institutions can't be overstated. As the Reuters story points out, it is the "the glue of the global banking system, handling daily payments estimated at more than US $6 trillion." The SWIFT website states that it operates in 209 countries and that "more than 9000 banking organizations, securities institutions and corporate customers" make use of it daily to "exchange millions of standardized financial messages." Hence the action last month against Iran—by cutting the country off from the SWIFT system, the affected financial institutions will find it very difficult to send or receive electronic payments, e.g., payments for shipments of its oil. The hope is that by bringing increased economic pressure, the Iranian government will agree to not build a nuclear weapon, which it denies doing, to general disbelief in the U.S. and EU.
SWIFT is as important in New Zealand as it is in Iran, however. News reports this morning stated that an initial investigation blamed the glitch on “a faulty network jumper cable.” Exactly what was meant by that wasn't explained, however. In addition, the glitch was now said to have been detected on Tuesday afternoon and was fixed by 1130 pm that evening, not Wednesday morning as initially reported. SWIFT management decided late Tuesday night to do “extensive testing” to make sure the system was working okay, which caused the performance degradation experienced throughout most of yesterday.
SWIFT said a probe is underway to determine what happened, why, and what was needed to be done to keep it from happening again. At the very least, it appears that a bit more in the way of system redundancy is going to be required. SWIFT promised a full report in the next ten days, hopefully before another outage occurs—just two weeks ago, a similar glitch hit Westpac Bank, delaying paychecks being deposited across many New Zealand banks.