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What Are SWIFT Payments & How Does a SWIFT Payment Work?


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Home / Payments Hub / Swift Payment
Dec 30, 2020

As global commerce evolves, countries have searched for a safe and secure means to get money from one bank to the next. International transactions often require a network or intermediary institution to ensure everything goes smoothly. In Europe, it’s called the Society for Worldwide Interbank Financial Telecommunications, otherwise known as SWIFT.

What are SWIFT Payments?

SWIFT payments are payment transactions using the SWIFT international payment network. This network is used to send or receive international electronic payments, which is why SWIFT payments are sometimes referred to as international wire payments. The SWIFT network doesn’t actually transfer funds but instead, sends payment orders between banks using SWIFT codes. It’s a means to transfer money overseas quickly, accurately, and securely.

In 2019, more than 11,000 SWIFT member institutions sent approximately 33.6 million transactions per day through the network. The financial service creates a global level of connectivity that speeds up international business and brings the world a little closer together.

The SWIFT payment network allows individuals and businesses to accept/send international money via electronic or credit card payments. This can be done even if the customer or vendor uses a different bank than the payee. The network is a place for secure financial messaging. In a sense, it’s nothing more than a messenger between banks. 

What is a SWIFT Code?

An Example of SWIFT Code

When you use SWIFT, you are not actually sending a money transfer. Instead, it is referred to as a “payment order” between two banks. This is done using a SWIFT code. 

It was the SWIFT network that standardized the formats for IBAN (international bank account numbers) and BIC ( bank identifier codes). SWIFT owns and administers the BIC system. This means it can identify a bank in seconds and send a secure payment quickly.

A unique SWIFT code is comprised of 8 or 11 characters. Other names for this same code include:

• Bank identifier code (BIC)
• SWIFT ID
• ISO9362

Example of a Swift Code

An example of a SWIFT code is the Italian bank UniCredit Banca in the city of Milan. The code is UNICRITMM. 

The first four characters (UNCR) is the bank code. The next two characters (IT) is the country code for Italy. Then the next two characters (MM) stand for the bank’s location or city code. The last three characters (which you do not see here) are optional. They are only used by banks to assign codes to individual branches. 

Using a SWIFT Code

An example of this in action would be when a customer walks into a Bank of America in New York and wants to send money to their friend in Venice through UniCredit Banca. They need their friend’s bank account number and the unique BIC code that applies not only to UniCredit Banca, but to the exact branch in Venice. 

Bank of America will then send a SWIFT message to UniCredit Banca over the secure SWIFT network. Once the Italian bank gets the message, it will clear and credit the money to the Italian friend, while Bank of America debits the customer’s account.

How Does a SWIFT Payment Work?

The original design and intent for SWIFT was to create a way for banks to communicate faster and more securely among themselves. Particularly in relation to processing international payments. The word “communicate” is always used because SWIFT is simply a messenger between banks. It channels the message enclosing payment instructions from the issuing bank (i.e. the payor) to the remitting bank (i.e. the beneficiary/receiver). 

All banks engaged in a SWIFT transfer will move funds from one account to another based on an underlying network of Nostro and Vostro accounts. This refers to accounts that banks have opened up with each other for the sole purpose of executing SWIFT transactions. 

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The Nostro and Vostro Accounts

As both banks keep a record of money deposited into the account, this leads to two mirroring sets of ledger known as the Nostro and Vostro accounts. Nostro refers to the account used by the bank to hold money, whereas Vostro refers to the name of the account used by the bank opening it in their books. 

When both banks have a commercial relationship with Nostro and Vostro accounts, the SWIFT transfers are direct and immediate. When banks do not have this type of relationship, the SWIFT network has to determine the best means to pass the message on. In this case, a third-party is required, also known as an intermediary bank. 

You have to find a middle-man to handle the transaction. Once a correspondent bank that has a commercial relationship between the two financial institutions is found, the SWIFT transaction can proceed. In this case, additional fees will be incurred from the third-party services. The more intermediary banks involved in the transaction, the more it will cost you to send. It will also take longer to send the payment, at a much higher risk, as there are more parties involved. 

Who Uses SWIFT Payments?

In the beginning, SWIFT was created to facilitate communication about treasury and correspondent transactions only. The functionality of the message format design allowed for large scalability. SWIFT gradually expanded to provide services for:

• Banks
• Clearing systems
• Money brokers and security broker dealers
• Corporates
• Non-bank financial institutions
• Treasury market participants
• Asset management companies • Depositories
• Foreign exchange
• And more…

How Much Does SWIFT Cost?

SWIFT is a cooperative society that is owned by members. These members are categorized into classes based on the share of ownership. All members pay a one-time fee plus annual charges which vary by member classes. 

In addition, the messaging system makes money by charging users on message type and length. These charges will vary based on the bank’s usage volume. This explains why you pay different fees for international payments from one bank to the next. Another reason is the bank’s commercial policy on an international funds transfer.

SWIFT also charges for extra services like business intelligence, professional apps, global payments innovations, and compliance.

What is the SWIFT Payment System?

SWIFT (Society for Worldwide Interbank Financial Telecommunications) is a payment system that allows banks across the globe to send messages and communicate securely and instantly about cross-border payments. Any SWIFT payment is part of the SWIFT payment system, which includes roughly 11,000 member banks across 200 countries. 

Prior to the development of the SWIFT network, banks relied on a system called TELEX to send wire transfers. Not only did the process move at a snail’s pace, but TELEX lacked the security and sophistication for a time when technology was making exponential progress. The free message format did not have a unified set of codes (like SWIFT) to name banks and transaction types. This created a lot of confusion and led to many human errors. TELEX senders had to describe every transaction in full sentences, which was then interpreted and executed by a dedicated receiver.

Therefore, as necessity is the mother of invention, the SWIFT network was born.

SWIFT is a member-owned organization. It was founded in Brussels in 1973 for the purpose of establishing common processes and standards for financial transactions. Banks needed a universal and consistent way to get money across the oceans. That’s where the SWIFT network comes in. Six major international banks formed a cooperative society to operate the global network in a secure and timely manner.

The SWIFT System Today

Currently, SWIFT provides messaging services to over 10,000 financial institutions in 212 different countries worldwide and helps facilitate global business. 

While the network started primarily for simple financial messages and payment instructions, it now sends reference data for a wide range of actions. This includes transactions for:

  • Security  
  • Treasury  
  • Trade 
  • System

Almost 50% of SWIFT messages are still payment-based, 47% are for security transactions, and the remaining traffic is for trade, treasury, and system transactions. 

Additional SWIFT Services

The SWIFT system offers many services that will help you send seamless, international transactions. Here are a few to check out:

Industry-leading Applications

SWIFT connections give you access to a variety of applications from real-time instruction matching to forex transactions and treasury. 

Expect applications that include tools for:

  • Banking market infrastructure for processing payments between banks
  • Securities market infrastructure for clearing and settlement instructions
  • Instructions for securities, forex, and derivatives transactions

Business Intelligence

SWIFT offers universal business intelligence dashboards and reporting utilities. This enables customers to get a dynamic, 360-degree view of messaging, activity, reporting, and trade flow. You can filter based on demographics like region, country, message types, and other related parameters.

Compliance Services

SWIFT offers services aimed at financial crime compliance. This includes reporting and utilities for Know Your Customer (KYC), Anti-Money Laundering (AML), and Sanctions. 

Messaging and Connectivity

SWIFT is the king of conversation and the entire focus is communication. The core of the business resides in streamlining the movement of messages and providing a safe, reliable, and secure network. SWIFT has a variety of messaging hubs and software so clients can effortlessly send and receive global transactional messages.

Global Payment Innovations

SWIFT’s latest service is called SWIFT Global Payments Innovations (GPI). The goal of SWIFT GPI is to improve the traceability and transparency of all cross-border payments. This means, if your bank is a member of SWIFT, they can check on the status of a payment at any given time of day. This type of flexibility when it comes to international payment processing is unparalleled by any other system. 

The Future of SWIFT

Although there are other real-time message services like Ripple, Fedwire, and Clearing House Interbank Payments Systems (CHIPS), SWIFT continues to retain a dominant position in capital markets. There’s a good reason for that too. The attributed success is due to how continually the network adds new message codes to transmit different kinds of financial transactions. In other words, it’s constantly adapting to new financial needs and fintech processes. This makes it the most reliable, flexible, and functional system for international wire transfers on the planet.

If your business is considering using SWIFT as a messaging network, understanding the process is a good first step!

About the Author

Brianna Blaney

Brianna Blaney began her career in Boston as a fintech writer for a major corporation. She later progressed to digital media marketing with various finance platforms in San Francisco.
She prides herself on reverse-engineering the logistics of successful content management strategies and implementing techniques that are centered around people (not campaigns).
In her spare time, she’s a self-proclaimed chef, lives in the middle of the woods, and has a frequent flyer card for birdseed and dog bones.


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