What are SWIFT payments?

A comprehensive guide to understanding everything you need to know about SWIFT payments.

SWIFT payments are a globally recognized method for transferring funds cross-border. In this article, we explain how SWIFT payments work, their advantages and disadvantages and the alternatives.

We cover:

• What is SWIFT?
• How does a SWIFT payment work?
• What is SWIFT used for in banking?
• What are examples of SWIFT payments?
• What details are necessary for a SWIFT payment?
• What is a SWIFT code?
• How do SWIFT online payment transfer work?
• How long do SWIFT payments take?
• How much do SWIFT payments cost?
• Who pays SWIFT charges?
• What are the pros and cons of SWIFT?
• What are alternatives to SWIFT?

1. What is SWIFT?

The Society for Worldwide Interbank Telecommunication, or SWIFT for short, connects more than 11,500 banks, financial institutions and corporate customers across more than 200 countries. It provides the rails that power international correspondent banking.

A private company, headquartered in Brussels, SWIFT describes itself as a global member-owned cooperative and a leading provider of secure financial messaging services.

2. How does a SWIFT payment work?

Imagine an NGO based in Denmark with staff and an active humanitarian aid program in Myanmar. Both maintain local bank accounts and want to send payments to one another. But because their respective banks don’t use the same domestic payment network, they can’t pay each other directly.

Instead, they rely on a network of international banks to route the payment. There could be as many as 4-6 intermediary banks, depending on the route.

3. What is SWIFT used for in banking?

SWIFT is a messaging system that enables international correspondent banking.

The term ‘correspondent banking’ dates from when banks used to send instructions via letter. Correspondent banking allows banks to offer their customers services internationally, without having local branches.

Correspondent banks act as intermediaries or middlemen, offering a variety of services, such as funds or wire transfers, currency exchange and settlement, to customers on behalf of other banks. Fees for these services are usually passed on from the domestic bank to their customer with a mark-up.

4. What are examples of SWIFT payments?

It’s not just banks that use SWIFT to transfer funds and make payments. Brokerage houses, clearing systems, asset management companies, foreign exchanges, corporates and others use the system.

Even payments that don’t involve a bank account at the customer level (e.g. remittances) rely on correspondent banking for the actual transfer of funds.

5. What details are necessary for a SWIFT payment?

The sender’s bank will usually request the following information to initiate a SWIFT payment:

• Beneficiary name – the name of the recipient of the payment
• Bank name – the name of the bank receiving the payment
• Bank address – the address of the bank branch at which the recipient’s account is held
• SWIFT / BIC code – an 8–11-digit alphanumeric code identifying the recipient’s bank
• Account number or IBAN – a unique identifier of the recipient’s bank account
• Transfer amount
• Currency
• Message to beneficiary – an optional field

6. What is a SWIFT code?

A SWIFT code goes by many names: BIC (business identifier code), SWIFT-BIC or SWIFT ID. It’s an 8-11-digit alphanumeric code that identifies the bank, country, location and branch.

7. How do SWIFT online payment transfers work?

SWIFT is essentially a financial messaging system that allows participants to communicate with each other. Banks involved in a SWIFT transfer move funds from one account to another based on an underlying network of nostro and vostro accounts.

Nostro accounts are those a bank holds with a foreign bank. ‘Nostro’ means ‘ours’ in Italian. Whereas vostro accounts are the opposite: accounts a foreign bank holds at ‘your’ bank. ‘Vostro’ means ‘yours’ in Italian.

8. How long do SWIFT payments take?

SWIFT payments usually take 2-5 working days to reach their destination. It’s possible they can take longer for a whole host of different reasons.

These include incorrect payment details, missing paperwork or technical outages. Then there are time zone differences between the sending and receiving banks, weekends, bank holidays and bank cut-off times, which can cause delays.

9. How much do SWIFT payments cost?

It is possible to pay between $10 and $50 for a SWIFT payment. But the fee depends on how the sending or receiving bank prices the service to its customers and how many intermediary banks are involved.

Generally, there are three main components to SWIFT fees for bank customers.

Firstly, bank handling fees, which may vary depending on how many intermediary banks are involved in facilitating the payment.

Secondly, foreign exchange fees, which again depend on the number of intermediary banks as well as a bank’s foreign exchange mark-up. Because SWIFT payments are generally cross-border, currency conversions happen each time there’s a currency difference between the sending and receiving institutions.

Thirdly, there are additional fees if a bank traces, recovers or cancels a SWIFT payment. For example, if a bank investigates a missing or delayed payment.

10. Who pays SWIFT charges?

There are three different ways of paying SWIFT charges:

• OUR – the sender pays all the fees, including their own, the recipient’s and those of any intermediaries
• BEN – the recipient pays all the fees
• SHA – the sender and recipient share the cost of the transaction

11. What are the pros and cons of SWIFT?

Some pros of SWIFT are:

• Global coverage – available in 200+ countries
• Familiarity – has existed for 40+ years
• Security – bank-grade security to maintain data confidentiality, availability and integrity

Some cons of SWIFT are:

• Speed – typically takes 2-5 days; slow
• Cost – not always possible to know costs up-front; expensive
• Transparency – can’t necessarily track payments easily

12. What are alternatives to SWIFT?

Non-bank payment providers, like Inpay, have built alternative networks to SWIFT to link destination and origin countries. This makes cross-border payments as fast, simple and efficient as local bank transfers.

New providers may be regulated entities, so a robust compliance approach and anti-financial crime controls are prerequisites of their licence.

Inpay pays out to over 100 countries where recipients receive the full payment without deductions. That’s because funds never leave the network – they’re simply re-routed to another account internally and sometimes pre-funded – which drives maximum visibility and an industry-leading 99% transaction success rate.