MT940 File

What are the Origins of the MT940 File?

In short, bankers needed a way to facilitate interbank financial communications, and SWIFT introduced a secure, standardized messaging platform that exchanged financial information. SWIFT codes, also known as a Bank Identifier Code (BIC), are a subset of these message standards used to identify the country, bank, and branch for a registered account. MT940 became one of its commonly used bank statement files.

How Does the MT940 Format Work?

Many banks use the SWIFT communication network to exchange account information and settle cross-border transactions. Developed by SWIFT, MT940 format records all daily financial transactions. Then, all of the entries are summarized into one statement and the MT940 files can be sent directly to the account owner or their financial institution.

What are the benefits of MT940 files?

Each bank may have its own file format for recording transactions. While these formats may update more often, the drawback is reading multiple file formats. It makes it difficult for businesses to match SWIFT transactions with their bank account ledger. In contrast, the MT940 format standardizes account reporting by providing a daily MT940 file per account, giving businesses a comprehensive view of its transactions at the end of each day.

For instance, one company may manage thousands of daily SWIFT transactions. A specific payment goes out on a Monday, and is reflected in the recipient’s bank account on a Tuesday. As the company matches its internal records to its bank records, also known as bank reconciliation, an MT940 file provides the details to verify why and when money left its account.

Without MT940 files, individuals must sift through esoteric file formats that are not always supported by their current platform. This can delay reconciliation and strain time and resources.

Who uses MT940 files?

Businesses use MT940 files to look at relevant information regarding their bank account, such as updated balances and previous transactions. MT940 files facilitate communication between banks and businesses through their standardized account statements. By doing so, the files help businesses align bank transactions with their ledgers, ensuring they are working with the most up-to-date balance.

For companies operating at scale, processing thousands to hundreds of thousands of transactions each day, MT940 files expedite time-sensitive transaction reporting. With all files translated into the same format, businesses can locate a specific transaction in a ledger, avoiding the manual process of sorting through various file formats.

MT940 and ISO 20022

Over the next few years, every domestic payment system around the world will transition from their own language to ISO 20022 files. By providing a standardized model, ISO 20022 files will facilitate financial communications in an increasingly global economy. While MT940 files are still the norm for SWIFT transactions, SWIFT plans to gradually integrate ISO 20022 starting in November 2022. These files will touch most payment rails, including wire systems, ACH, and real time payments, fulfilling the need for a method for two parties to exchange standardized messages.

As ISO files are phased in, SWIFT users will have to upgrade their messaging interface so messages are properly processed. ISO files will work alongside MT message files until November 2025—which entails that corporations and banks will eventually have to shift away from MT940 files.