What is SWIFT? The Banking System and Payment Network

Evan Dunn6 minutes
What is SWIFT? The Banking System and Payment Network
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What are SWIFT Payments?

The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a financial messaging system which facilitates the movement of money globally. If you’ve ever received or sent money overseas, chances are you’ve used SWIFT. SWIFT doesn't actually transfer or hold money, it's a messaging network used by financial institutions when processing international money transfers.

For the past 50 years, the SWIFT network has provided the infrastructure that underpins the international movement of money. But in recent years, businesses and individuals have been looking to new technology to enable faster and more cost-efficient global payments. In this article, we’ll delve into what SWIFT is, how SWIFT payments work and what the new alternatives are. 

A brief history of SWIFT

Founded in Brussels in the 1970s, SWIFT established a series of common processes to standardise international payments. 

Prior to SWIFT, banks relied on the TELEX system to process global transfers. TELEX used a wire system, similar to traditional telegraphs, to transmit text-based messages between banks, notifying of a money transfer. That’s why some people still use the term ‘wire transfer’. Unfortunately, the TELEX system was slow and vulnerable to security breaches and human errors. 

SWIFT provided financial institutions with a private network to transmit financial data worldwide. They also introduced a standardised system of codes to identify financial institutions. This meant they could offer their members complete security and accuracy when processing global transfers. Since its inception, SWIFT has grown to include over 11,000 financial institutions spanning 212 countries across the world, providing a secure method for banks to transfer currency between countries.

How is SWIFT governed? 

Although SWIFT itself is neutral, its lead regulator is the Bank of Belgium and it operates under Belgian law. SWIFT is also overseen by the G-10 central banks, and other banks from major economies including the People’s Bank of China, the Monetary Authority of Singapore and the South African Reserve Bank.  

SWIFT is also owned and controlled by its 2,400 global shareholders, who elect its Board of Directors. The SWIFT Board of Directors includes 25 representatives from banks around the world. SWIFT also employs an internal Executive Committee. 

What is the geopolitical relevance of SWIFT?

Because the SWIFT network is the most common way for banks around the world to transfer money globally, it also plays a significant role on the geopolitical stage. Cutting financial institutions off from the SWIFT network has become a key way for the European Union (EU) to sanction countries that have broken international law. 

In 2012, EU sanctions against Iran meant that SWIFT disconnected from sanctioned Iranian banks. And in February 2022, SWIFT severed ten Russian and Belarusian banks from their systems on instruction from the EU after Russia’s invasion of Ukraine. Alternative payment systems, including Airwallex, also blocked payments to and from Russian banks in accordance with EU sanctions. 

Sanctions are designed to put economic pressure on countries that have broken international law, as they prevent those countries from receiving payments from other countries.  

Do all banks use SWIFT 

No, there are some banks that do not use the SWIFT messaging system. Many smaller banks in America do not use SWIFT and credit unions are usually not SWIFT members. Banks that do not use SWIFT often have to rely on legacy systems which are slow and manual when processing cross-border payments. 

How SWIFT works

SWIFT doesn’t actually transfer money, it transfers information. When you send money using SWIFT, the network creates a payment order that gets passed between different financial institutions. SWIFT uses a system of codes to identify these financial institutions. 

A SWIFT code consists of 8-11 characters. These characters are used to identify the bank that is sending the message and the bank that is receiving it. SWIFT codes are also known as Bank Identifier Codes (BIC).

Each element of a SWIFT code represents a piece of information:

  • A 4-letter bank code 

  • A 2-letter country code 

  • A 2-digit location code 

  • A 3-digit branch code (SWIFT codes don’t always include this)

What's a SWIFT code: Bank code. Country code. Location code. Branch code.

The SWIFT network acts as an information transport network, connecting your money’s original location to its final destination.

Where can I find my SWIFT code?

Banks usually publish their SWIFT code on their website and online banking apps. Look for a code that is 8 or 11 characters long. If you’re stuck, you can call your bank and ask them to provide you with their SWIFT code.    

SWIFT codes are also referred to as BIC (bank identifier codes) SWIFT ID, or ISO 9362 code. These terms can be used interchangeably to refer to the same code. 

The difference between IBAN and SWIFT code

IBAN stands for International Bank Account Number. IBANs and SWIFT codes are often confused because both are needed to send an international payment. The difference between an IBAN and a SWIFT code is that IBANs are used to identify an individual bank account, whilst SWIFT codes are used to identify a bank.

IBANs are always unique and can be up to 34 characters long.  You can find your IBAN on your bank statements or your mobile banking app. If you can’t find it, contact your bank. 

What happens if you use the wrong SWIFT code?

If you send a payment using a SWIFT code that doesn’t exist, your payment will be returned to you. However, there may be a delay in returning the payment and you might be charged a fee. 

If you send an incorrect payment to a SWIFT code that does exist, the receiving bank should flag that they do not manage your recipient’s account and reverse the payment. 

If you realise that you’ve used the wrong SWIFT code, you should contact your bank immediately and ask them to cancel the transaction. 

What is SWIFTNet?

SWIFTNet is the messaging platform that SWIFT member institutions use to transmit messages when processing overseas transfers. Within SWIFTNet there are four services.

FIN: SWIFT’s original messaging service which allows messages to be exchanged between financial institutions, formatted with the traditional SWIFT MT standards. FIN offers store-and-forward messaging. 

InterAct: allows messages to be exchanged between financial institutions, formatted with the new XMLbased SWIFT MX standards. As well as store-and-forward messaging, InterAct supports real-time messaging, and real-time query-and-response. 

FileAct: is used to transfer large batches of messages such as bulk payment files, very large reports, or operational data.

Browse: allows users to securely browse financial websites available on SWIFTNet. 

Who uses SWIFT?

SWIFT is used by a range of businesses and individuals who wish to transfer money overseas. Including banks, securities dealers, asset management companies, clearinghouses, depositories, foreign exchange brokers and more. 

There are other messaging networks that can be used for transferring money globally, such as Fedwire, Ripple, and Clearing House Interbank Payments System (CHIPS). But SWIFT remains the most widely used network for transferring money globally. 

However, in an increasingly global world, many businesses now look to faster and more cost-efficient ways to send and receive money overseas. An Airwallex multi-currency business account is one such solution, offering businesses same-day transfers, market-leading rates and world class security, as well as the ability to trade in multiple currencies from a single platform. 

How to make a SWIFT payment

To make a SWIFT payment in branch or using online banking, you will need: 

  • The full business name if sending to a business, or the first and last name of the recipient if sending to an individual. 

  • The full address of the recipient (if sending to a business, this will be the business address).

  • The international bank account number (IBAN) of the recipient.

  • The name and address of the recipient bank.

  • The recipient bank’s SWIFT code.

Your bank will then send a SWIFT message to the receiving bank, communicating your request to transfer money. The recipient’s bank will receive the SWIFT communication and credit the receiving bank account. This process will take 1-4 business days. 

Not all financial institutions are part of the SWIFT network, so it’s important to confirm that your bank and your recipient’s bank are SWIFT members before making a transfer. 

What are SWIFT’s payment fees

There are two sets of fees you can expect to pay when making a SWIFT payment.

  1. Transaction fees: SWIFT communications don’t always travel directly between banks. Sometimes they will go between intermediary banks before reaching their final destination, and each bank will charge a handling fee for their service. Your bank may charge a flat rate to cover these fees, or they may charge you a variable fee. Given the international nature of the SWIFT payment network, there is no set table of fees so it pays to check first. 

  2. Foreign exchange fees: If your transfer involves exchanging currencies, you will be charged a foreign exchange (FX) fee. The FX rate you are offered depends on the interbank rate (this is the rate that banks pay when exchanging currencies with other banks) and the FX fees that the bank charges its customers. Banks can charge up to 3.5% in FX fees on top of the interbank FX rate, so it’s worth checking what your bank's fees are before making a payment. There may be a cheaper way to send your money. 

When making a SWIFT payment, it’s important to check how fees are charged to ensure your recipient gets the correct amount of money.  Banks allow you to choose whether fees are paid by you, your recipient, or split between the two of you. You should agree which option is best for you and your recipient before making the payment. 

Airwallex offers businesses a more cost efficient way to make international payments. We do not charge transaction fees on international payments, and our FX rates are significantly lower than high street banks.

How long do SWIFT payments take?

Depending on the complexity of the transfer, SWIFT payments take anywhere between 24 hours and 5 business days to clear. 

The drawbacks of using the SWIFT network

The SWIFT payment network has a lot of advantages. It’s secure, transparent and reliable. However, it also has a couple of major disadvantages.

  1. Delayed payments: Because SWIFT payments rely on the cooperation of multiple financial institutions, SWIFT payments can take up to five days to process. What’s more, there’s no way to know how long your payment will take to clear. Delays can happen without warning. If you’re a business that needs to pay staff and suppliers on time, this can cause a lot of problems. No one wants to receive their pay check five days late!

  2. Hidden fees: Different financial providers charge different fees when processing SWIFT payments, which means it can be difficult to determine what the final cost of a SWIFT transaction will be. This means you and your recipient may be subject to surprise fees. In the worst case, this might mean your recipient receives less money than they’re expecting, which can cause friction between businesses and the people they need to pay.

Discover the alternative to SWIFT

The SWIFT payments network was revolutionary for its time, but it’s now over 50 years old. Global businesses that want to process international payments quickly and cost-efficiently are increasingly choosing alternative payment methods, such as Airwallex. 

Airwallex provides businesses with a faster and more cost-efficient alternative to SWIFT. Using our payment rails, founded on a global infrastructure of 50+ banking licences, businesses can securely transfer money to over 150 countries in 40 currencies, whilst saving time and money.

Airwallex does not charge any handling fees on overseas payments, our FX rates are significantly cheaper than high street banks, and over 80% of international payments arrive the same day they’re sent. For a better way to send money globally, sign up for a free account today

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Evan Dunn
Growth Marketing Lead, US

Evan Dunn manages the growth of Airwallex's SMB business in the US through marketing avenues. Evan is a generalist with expertise in SEO, paid media, content marketing, performance marketing and social selling. He also enjoys slam poetry and waffle making.

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