What is the SWIFT Payment Network?

6 minutes
What is the SWIFT Payment Network?
In this article

These days it feels like money can be sent internationally in the blink of an eye. However, the majority of these international transfers are carried out between banks, via the SWIFT network.

It’s not something you necessarily think about, but the SWIFT network provides the infrastructure that underpins your international money transfers. Some people still refer to these as ‘wire transfers’.

In this article, we’ll delve into what a SWIFT payment actually is, and how SWIFT payment works.

What is SWIFT?

SWIFT is an acronym that stands for the Society for Worldwide Interbank Financial Telecommunication. So SWIFT itself isn’t just a payment method, it’s an organisation. 

The SWIFT network has been around since 1973 and was created to establish a series of common processes to standardise international payments. Since its inception, it has grown to include over 10,000 financial institutions spanning 212 countries all across the world, providing a secure, fast, consistent method for banks to transfer currency between countries.

A quick history

Prior to the SWIFT network banks relied on the TELEX system. TELEX used a wire system, similar to telegraphs, to transmit text-based messages between banks, notifying of a money transfer—hence the current term ‘wire transfer’.

How the SWIFT network operates

Unlike current peer-to-peer currency transfer platforms, SWIFT isn’t a portal that transfers money from one bank to the other. It transfers information.

The SWIFT network acts as an information transport network, connecting your money’s original location to its final destination via a series of banks. Your money is then transferred from country to country, passing between different financial institutions, until it reaches its endpoint.

Interestingly, the SWIFT network doesn’t actually transfer your money. Instead, it creates a payment order that gets passed between the different financial institutions’ accounts. This is known as a SWIFT code and consists of a unique series of 8-11 characters that are used to identify the specific bank where your money is headed. SWIFT codes are also known as Bank Identifier Codes (BIC).

When we break this down, we see that each SWIFT code is made up of a string of different codes:

  • A 4-letter financial institution code

  • A 2-letter country code

  • A 2-digit code for the city or location

  • If applicable, a 3-digit individual branch code (although SWIFT codes don’t always include this)

It’s these codes that get transferred between banks, and the end result is money arriving at its destination. 

Using the wrong SWIFT code

Using the wrong SWIFT code, or simply getting it wrong, can result in your transfer being delayed, or not being sent at all.

Making a SWIFT payment

Banks usually publish their SWIFT code on their website, however, you can also perform a search of the SWIFT database to find the specific financial institution you’re looking for. It’s always best to check with your bank prior to sending, though, to make sure you’re using the best code.

Making a SWIFT payment involves the following steps.

  1. You go to your bank and provide them with the receiving bank account, and the bank’s SWIFT code.

  2. Your bank then sends a SWIFT message to the receiving bank, communicating your request to transfer money.

  3. The bank receives the SWIFT communication and allows the money to be credited to the receiving bank account.

The costs involved with a SWIFT payment

When making a SWIFT payment, it’s important to confirm that your bank is actually part of the SWIFT network. If so, you’re set up to make payments. However, there are a number of fees to be aware of when making a SWIFT payment.

As you’re transferring between banks, each intermediary bank will likely charge a handling fee or commission for their service. Your bank may charge a flat rate to cover these fees, so it pays to check first. Given the international nature of the SWIFT payment network, there is no set table of fees.

If your transfer involves exchanging currency from one to another, be aware of your exchange rate. Banks have been known to offer poor exchange rates on SWIFT payments, and they end up keeping the difference. The rate banks charge can be up to 4-5% higher than the interbank FX rate (what you find on Google).

With these fees involved, transferring smaller amounts can end up being quite costly, and end up taking a large chunk out of your funds.

SWIFT payment timeframes

While the SWIFT network was created to be a faster, safer alternative for international transfers, the irony is that in terms of modern-day payments it can actually be quite slow. 

SWIFT transfers will usually take 24-48 hours to be completed, however depending on the complexity of the transfer, they can take up to five business days in some circumstances.

Discover the alternative to SWIFT

While SWIFT certainly has revolutionised international money transfers, it is over 40 years old and in need of an update. Fintech’s like Airwallex are revolutionising cross border payments with their priority technology. With Airwallex’s technology, businesses can bypass the SWIFT network, reducing fees while at the same time making payments faster (up to same day). 

Contact us today to book a demo, and discuss how Airwallex can streamline your international transfers.

Related article: 6 surprising reasons why your bank transfer is delayed

Our products and services in Australia are provided by Airwallex Pty Ltd ABN 37 609 653 312 who holds AFSL 487221. Any information provided is for general information purposes only and does not take into account your objectives, financial situation or needs. You should consider the appropriateness of the information in light of your own objectives, financial situation or needs. Please read and consider the Product Disclosure Statement available on our website before using our service.

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In Australia, our products and services are provided by Airwallex Pty Ltd ABN 37 609 653 312 who holds AFSL 487221. Any information provided on this website is for general information purposes only and does not take into account your objectives, financial situation or needs. You should consider the appropriateness of the information in light of your own objectives, financial situation or needs. Please read and consider the Product Disclosure Statement.

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