An introduction to the SWIFT payment network

Evan Dunn
4 minutes
An introduction to the SWIFT payment network
In this article

It often feels like international transactions process in the blink of an eye. And while they are typically quite rapid, there is a process behind international money transfers that we don’t see. Money transfers, also referred to as “wire transfers,” are fulfilled between banks via the SWIFT network.

We typically don’t think about the process behind these transfers, but it’s useful to understand that the SWIFT network provides the infrastructure for sending money, and how complications with it can lead to delays and other complications.

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

What is SWIFT?

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication, which is just as much of an organization as it is a payment method.

The SWIFT network was established in 1973 as a series of processes to standardize international payments. It now includes over 10,000 financial institutions spanning 212 countries across the globe. SWIFT provides a fast, secure, and consistent method for banks to transfer money in different currencies between countries.

A quick history of SWIFT

Banks relied on a wire system called TELEX before the SWIFT network was established. TELEX’s wire system is similar to telegraphs in that they transmit text-based messages between banks.

These text-based messages would notify banks of any money transfers. This is how the term “wire transfer” came to be. 

How the SWIFT network operates

In short, SWIFT transfers information, unlike peer-to-peer currency transfer platforms that transfer money.

SWIFT acts as an information transport network via a series of banks. It connects your money’s original location to its final destination. Essentially, the information about your money transfer is communicated from country to country, passing between different financial institutions until it reaches its endpoint.

SWIFT creates a payment order — also known as a SWIFT code or Bank Identifier Code (BIC) — that passes between different financial institutions’ accounts. SWIFT codes consist of a string of eight to 11 characters that identify the specific bank your money is transferring to. 

Each SWIFT code is made up of three to four smaller codes following this order:

  • Four-letter code: These identify the bank or financial institution.

  • Two-letter code: These identify the country. 

  • Two-letter or two-digit code: These identify the city or location.

  • An optional three-letter or three-digit code: These identify the individual branch.

Banks transfer SWIFT codes between each other, which results in money arriving at its final destination. 

Using the wrong SWIFT code

Using the wrong SWIFT code, or simply mistyping it, can result in transfer delays or even complete payment failure.

Making a SWIFT payment

SWIFT codes are usually published on a bank’s website. However, you can perform a search through the SWIFT database to find the specific financial institution’s code that you need. It’s always best to check with your bank prior to sending a transfer to ensure you’re using the correct code.

Making a SWIFT payment involves the following steps.

  1. Provide your bank with the receiving bank’s information and SWIFT code.

  2. Your bank will send a SWIFT message to the receiving bank to communicate your money transfer request.

  3. The receiving bank will receive your bank’s SWIFT message, then allow the money you’re transferring to be credited to the receiving bank account.

The costs involved with a SWIFT payment

Confirming that your bank is part of the SWIFT network is vital before making a SWIFT payment. You can begin setting up your payment as long as your bank is part of the SWIFT network. However, there are a number of fees associated with making a SWIFT payment.

Each intermediary bank will likely charge a service commission or handling fee when transferring money between banks. But given the international nature of the SWIFT network, there’s no set table for fees. However, your bank may charge a flat rate to cover them, but it’s best to clarify with them directly. 

You should also research exchange rates if your transfer involves different currencies. Banks are known to offer poor exchange rates on SWIFT payments, and end up keeping the difference. Exchange rates are sometimes 4% to 5% higher than the interbank foreign exchange (FX) rate.

These fees can make it quite costly to transfer smaller amounts, sometimes taking an unexpectedly large amount out of your funds.

SWIFT payment timeframes

The SWIFT network was created as a faster and safer alternative for international transfers. However, it’s quite slow in terms of modern-day payments. 

SWIFT transfers usually take 24 to 48 hours to process, depending on the complexity of the transfer. They can even take up to five business days in some circumstances.

Discover the alternative to SWIFT

SWIFT has certainly revolutionized international money transfers. But after 40 years, it’s in need of an update. 

Fintechs like Airwallex are transforming cross-border payments with their innovative technology.  Businesses can bypass the SWIFT network and make payments as soon as the same day, while also reducing fees.

Sign up today to learn how Airwallex foreign currency accounts can streamline your international transfers. 

Related article: The benefits of virtual debit & credit cards

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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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