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What is Swift payment system :

The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is the world’s leading provider of secure financial messaging services.
It facilitates trillions of dollars of cross-border payments between 11,000 financial institutions in more than 200 countries.
Each member has its own SWIFT code. Every day, more than 40 million financial messages are exchanged securely using the SWIFT platform.Headquartered in Belgium, SWIFT is a global member-owned cooperative that was founded in 1973 by 239 banks from 15 countries.

Who Uses SWIFT?

In the beginning, SWIFT founders designed the network to facilitate communication about Treasury and correspondent transactions only. The robustness of the message format design allowed huge scalability through which SWIFT gradually expanded to provide services to the following:

Banks
Brokerage Institutes and Trading Houses
Securities Dealers
Asset Management Companies
Clearing Houses
Depositories
Exchanges
Corporate Business Houses
Treasury Market Participants and Service Providers
Foreign Exchange and Money Brokers

The World Before SWIFT

Prior to SWIFT, Telex was the only available means of message confirmation for international funds transfer.
Telex was hampered by low speed, security concerns, and a free message format. In other words, Telex did not have a unified system of codes like SWIFT to name banks and describe transactions.
Telex senders had to describe every transaction in sentences that were then interpreted and executed by the receiver. This led to many human errors, as well as slower processing time.⁷
To circumvent these problems, the SWIFT system was formed in 1973.
Six major international banks formed a cooperative society to operate a global network that would transfer financial messages in a secure and timely manner.

About the Ban :

The U.S., Canada and Europe are tightening financial restrictions on Russia with a new ban that blocks seven Russian banks from using SWIFT, the global messaging system that enables bank transactions.
The move is aimed at disrupting Russia’s ability to do business across borders.

Which banks :

The seven banks the EU specified give insight into what the coalition of countries does, and does not, hope to affect with the sanctions.
In addition to VTB, the EU said the other affected banks are Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank and VEB. They have 10 days to cease sending SWIFT messages before they are fully blocked from the system.
Notably missing from that list are main banks that handle Russian oil and gas transactions, such as the country’s largest bank, Sberbank, or Gazprombank. President Joe Biden included Sberbank in the list of banks the U.S. sanctioned last week, but since EU countries are still buying Russian oil and gas, the current SWIFT ban does not specifically affect that.
EU officials chose the specific seven banks because of their Kremlin connections, Reuters reported. As a consequence, the SWIFT removal may frustrate state officials’ dealings with other countries.
The ban also extends to any entities for which the seven banks hold more than 50% ownership.

How will banning Russia from Swift affect it?

At this stage, it is not known which Russian banks will be removed from Swift. This is expected to become clear in the coming days.
The statement from EU, the US, the UK and others said the move would “ensure that these banks are disconnected from the international financial system and harm their ability to operate globally”.
The aim is for Russian companies to lose access to the normal smooth and instant transactions provided by Swift. Payments for its valuable energy and agricultural products will be severely disrupted.
Banks would be likely to have to deal directly with one another, adding delays and extra costs, and ultimately cutting off revenues for the Russian government.
Russia was threatened with a Swift expulsion before – in 2014 when it annexed Crimea. Russia said the move would be tantamount to a declaration of war.
Western allies did not go ahead, but the threat did prompt Russia to develop its own, very fledgling, cross-border transfer system.
To prepare for such a sanction, the Russian government created a National Payment Card System, known as Mir, to process card payments. However, few foreign countries currently use it.