What are SWIFT Payments and how do they work?

SWIFT is a method of transferring information rather than money.  Therefore, even though we refer to them as SWIFT transfers, that isn't totally correct.  Your bank still handles the money transfer to the recipient's bank when you make a SWIFT payment.

The network generates a payment order when you "send" money using SWIFT, and it is transferred between the various financial institutions.  SWIFT can identify the financial institutions involved in the transfer thanks to the SWIFT codes that are unique to each financial system. By linking the initial location of your money with its ultimate destination, the SWIFT network serves as an information transit network.  To make a payment, you will therefore need a SWIFT code, an account with an international bank, and a few other things. 

Step 1 - Compile the necessary banking data.

 As with any transfer, you need to know some important financial details about each party.  SWIFT uses this information to make international bank money transfers easier. 

 In order to finish a SWIFT payment, you will require:

•  All of your personal data, such as your name, address, and bank account number.
•  The entire name of the receiver, which may be the name of the company or a person's legal name.
•  The address of the recipient (if the recipient is a business, use a business address).
•  The name and address of the recipient bank.
•  The SWIFT code of the recipient bank.

The length of a SWIFT code is eight to eleven characters.  The bank delivering the message and the bank receiving it are identified by these characters.  Bank Identifier Codes (BIC) are another name for SWIFT codes.

 Every component of a SWIFT code denotes a piece of data:

•  A four-digit bank code 
•  A two-letter country code 
•  A two-digit location code 
•  A three-digit branch code, which is not generally included in SWIFT codes

Note: International Bank Account Numbers (IBAN) and SWIFT numbers are not the same.  Since both are required to send an international payment, IBANs and SWIFT codes are frequently confused.  Unique IBANs identify a single bank account, whereas SWIFT codes identify a bank. This is how an IBAN differs from a SWIFT code.

Step 2 - Make a transfer request and take fees into account

The procedure is the same as with any other bank transfer after you have the recipient bank's SWIFT number and other identifying information.  To start the transfer, you can get in touch with your bank online or in person.

However, before submitting the payment, make sure you comprehend how SWIFT payment costs operate.  It pays to check first because there is no defined table of costs due to the global nature of the SWIFT payment network. 

 When using SWIFT to make a payment, you can anticipate paying two different sets of fees.

• Transaction fees: Not all SWIFT transactions go straight from bank to bank.  Before arriving at their ultimate destination, they occasionally pass through intermediary banks, each of which levies a processing fee.  A variable or flat-rate fee may be assessed by your bank. 

• Foreign exchange fees: There is a foreign exchange (FX) cost associated with currency exchange transfers.  The interbank rate—the rate that banks pay when exchanging currencies with other banks—and the foreign exchange fees that the bank charges its clients determine the FX rate that is given.  There might be a less expensive way to transmit your money because banks can impose FX costs of up to 3.5% on top of the interbank FX rate. 

To make sure your receiver receives the right amount of money, it's crucial to verify how fees are charged.  Banks provide you the option to decide whether fees are paid by you, the recipient, or both of you.  Prior to completing the payment, you and the recipient should decide which option is best for you. 

Businesses can manage worldwide finances and perform international money transfers more affordably with Airwallex.  Our FX rates are far lower than those of main street banks, and we don't impose transaction fees on foreign transfers.

Step 3 - Verify the currency and recipient nation

Your bank will ask you to confirm the recipient country and preferred currency after you have made the transfer arrangements.  Keep in mind that if the recipient's currency differs from yours, you will be required to pay FX charges. 

The transfer will now be arranged through SWIFT messaging between your bank and the beneficiary bank.  It could take one to five business days for the transfer to clear.

The History of SWIFT and its significance

In the 1970s, SWIFT was founded in Brussels and created a set of standardized international payment procedures.  Before SWIFT, banks processed international transfers via the TELEX system, which gave rise to the term "wire transfer."

Financial firms now have a private network to send financial data globally thanks to SWIFT.  A standardized coding system for identifying financial institutions was also created by them.  As a result, they were able to conduct international transfers with total precision and security for their members.  Since its launch, SWIFT has expanded to encompass more than 11,000 financial institutions in 212 nations, offering banks a safe way to move money between nations along with a number of other services.

SWIFT services

• In addition to core financial messaging banks, SWIFT offers a wide range of services to businesses.  Additionally, businesses can use SWIFT for:
• Provide market infrastructure services to assist companies in adjusting to changing financial legislation and community demands. 
• Support for cybersecurity and financial crime compliance to ensure efficient adherence to know-your-customer (KYC), anti-money laundering (AML), and international sanctions. 
• To navigate the contemporary, global economy, corporate treasury includes cash management and financial risk management. 
•  In the end, this is merely an overview of the entire SWIFT product and service list3. 

SWIFT's geopolitical significance

The SWIFT network is important on the geopolitical arena since it is the most widely used method for banks worldwide to transmit money.  Despite SWIFT's neutrality, the European Union (EU) has made cutting off financial institutions from the network a major tool for punishing nations that violate international law. 

SWIFT cut ties with sanctioned Iranian banks in 2012 as a result of EU sanctions on Iran.  Additionally, following Russia's invasion of Ukraine in February 2022, SWIFT removed eleven banks from Belarus and Russia from their systems under EU directive.  In compliance with EU sanctions, other payment systems, such as Airwallex, likewise prohibited payments to and from Russian banks. 

By preventing such nations from obtaining payments from other nations, sanctions are intended to impose economic pressure on those who have violated international law. 

Under Belgian legislation, SWIFT is primarily regulated by the Bank of Belgium.  Nonetheless, the G-10 central banks as well as other banks from significant economies, such as the South African Reserve Bank, the Monetary Authority of Singapore, and the People's Bank of China, also supervise SWIFT.  

Who makes use of SWIFT?

 A variety of companies and individuals who want to send money abroad use SWIFT.  This comprises:

•  Banks
•  Cross-border companies
•  Foreign employers
•  International franchises
•  Dealers in securities
•  Companies that manage assets
•  Houses being cleared
•  Depositories
•  Brokers of foreign exchange

Additional communications networks, including Fedwire, Ripple, and Clearing House Interbank Payments System (CHIPS), are available for international money transfers.  However, SWIFT continues to be the most used network for international money transfers.

FAQs 

1. The SWIFT banking system is owned by whom?

• The 2,400 global shareholders who choose SWIFT's Board of Directors also own and run the company.  There are twenty-five representatives from banks worldwide on the SWIFT Board of Directors.  Additionally, SWIFT has an Executive Committee within the organisation.

2. Does SWIFT become used by all banks?

• Although it's not a certainty, most banks have a SWIFT code.  Smaller banks and credit unions may not use international routing codes or connect to the SWIFT network.  Verifying that both your bank and the recipient's bank accept SWIFT transfers is a smart idea.

3. What is the number of banks that are part of the SWIFT network?

• The SWIFT network facilitates international money transactions by connecting more than 11,000 financial institutions in 212 countries.