What is the SWIFT Payment Network?

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

In our digital day and age, you can quickly and effortlessly transfer your money overseas from Hong Kong. But did you know that a large part of these international transfers are conducted through banks and other financial institutions via the SWIFT network?

SWIFT is a global messaging system that serves as the backbone of your international money transfers. Some people still call them ‘wire transfers’.

Let’s take a look at what a SWIFT payment actually is and how it works.

What is SWIFT?

SWIFT is the acronym for the Society for Worldwide Interbank Financial Telecommunication. Founded in 1973, it is an organisation headquartered in Belgium with offices around the world including Hong Kong, China, and Switzerland. SWIFT was created to provide a better solution for enabling international payments. It offers a fast and reliable way for banks to transfer money globally. More than 35 million daily transactions were sent in 2020 by over 11,000 SWIFT member institutions.

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.

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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

Before making a SWIFT transfer, you should check to make sure that your bank is a member of SWIFT. Otherwise, you won’t be able to complete your transfer. There are also a number of surcharges that you should take into consideration prior to sending your money.

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

It usually takes around 24-48 hours for SWIFT payments to be processed and received. In some cases, they can take up to 5 business days to complete, depending on how complicated the transfer is.

When it was first introduced in the 1970s, the SWIFT network was considered a pioneering infrastructure that provided a much faster way to move money around the globe, compared to the wire transfers of the time. However, it is considered slow in today’s standards when we’re used to having transactions carried out within seconds.

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 up to 90% in transaction fees while at the same time making payments faster (up to the same day). 

Send international payments with $0 TT fees and market-leading FX rates

Create your free account today and book a demo to discuss how Airwallex can streamline your international transfers.

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Alice Wong
Growth Marketing Lead

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