SWIFT, short for Society for Worldwide Interbank Financial Telecommunication, stands at the heart of international financial transactions, powering the global movement of money and securities. Established in 1973 in Belgium, SWIFT operates as a cooperative society, offering a vast messaging network that enables over 11,000 financial institutions in 200 countries to exchange vital information securely.

SWIFT doesn't directly handle funds but provides a standardized platform for financial entities to communicate payment instructions swiftly and accurately. This standardized approach ensures that international payments are processed quickly and precisely, making it an indispensable tool for businesses dealing with significant financial volumes and requiring timely transactions. In November 2022, the institutions affiliated with SWIFT transmitted an average of 44.8 million messages daily across the network.

SWIFT Code / BIC

Financial institutions participating in the SWIFT banking system are assigned a distinctive identifier known as a SWIFT code or SWIFT ID, sometimes referred to as a BIC code (Bank Identifier Code) or ISO 9362 code. This unique code comprises 8 to 11 characters, each serving a specific purpose:

1. The first four characters identify the bank itself (e.g., ABCD for ABCD Bank Limited).
2. The following two characters represent the country where the bank is located (e.g., IN for India).
3. The subsequent two characters indicate the head office location (e.g., BB for Bangalore).
4. Optionally, the next three characters signify the individual branch, which can sometimes be replaced by "XXX." (e.g. BNG)

Information required for a SWIFT transfer

Consider this scenario: A customer in the US wishes to send money to a friend in Bangalore, India. They visit a local bank branch and provide the following details:

1. Recipient's full name
2. Recipient bank's full name and branch address
3. Recipient's bank's SWIFT or BIC code
4. Recipient's account number, amount and currency to be transferred
5. Payment reference, if required

With all the necessary details provided, the customer initiates the SWIFT payment process to transfer funds securely to their friend in Bangalore, India. The bank follows a series of steps to ensure a smooth international transaction:

Verification of Customer Details:

The customer's bank's representative verifies the customer's identity and the provided information, ensuring accuracy before proceeding with the transaction.

Initiating the SWIFT Payment Instruction:

Using the details provided, customer's bank creates a SWIFT payment instruction message. This message includes information such as the recipient's full name, the full name and branch address of the destination bank , the SWIFT code (BIC) of the recipient's bank, the recipient's account number, the specified amount in the desired currency, and any necessary payment reference.

Authentication and Encryption:

The payment instruction message is authenticated and encrypted to ensure the confidentiality and integrity of the data during transmission. This security measure is crucial to protect sensitive financial information.

Routing the SWIFT Message:

The authenticated and encrypted SWIFT message is sent through the secure SWIFT network. The message is routed to destination bank using the specified SWIFT code (BIC) for further processing.

Processing at the destination Limited:

Upon receiving the SWIFT message, destination bank validates the transaction details. They verify the recipient's account number, match the payment reference if provided, and confirm the authenticity of the transfer. If all details align, destination bank proceeds with crediting the funds to the recipient's account.

Payment Confirmation:

Once the funds are successfully credited to the recipient's account, destination bank sends a confirmation message back through the SWIFT network to the customer's bank. This confirmation serves as proof that the transaction has been completed, providing assurance to the customer and their bank.

Role of Intermediary Banks

The above process flow assumes that both banks involved in the transaction are part of the SWIFT network. However, In cases where the sender's and recipient's banks lack a direct commercial connection, an intermediary bank steps in. Chosen based on existing relationships, this intermediary acts as a bridge between the two banks, relaying the payment message. While adding a layer to the process, the intermediary bank facilitates the transfer. However, it may lead to slightly longer processing times and additional fees. Despite this, the SWIFT network guarantees secure communication and precise fund transfers, enabling seamless global transactions

How much does SWIFT cost?

SWIFT transfers are a reliable means of sending money internationally, but it's essential to be aware of the associated costs. The fees for a SWIFT transfer can vary based on multiple factors, including the type of transfer, the banks involved, and the destination country. It's crucial to understand these fees to ensure a seamless and cost-effective transaction. Below, we'll break down the different costs you may encounter during a SWIFT transfer:

1. Outgoing Wire Transfer Fee: This fee is charged by the sender's bank to initiate the SWIFT transfer. It's essential to note that this fee varies depending on the amount being sent and the destination country.
2. Incoming Payment Fee: The recipient's bank charges this fee to process the incoming SWIFT transfer. Like the outgoing fee, it can vary based on the amount received and the country of origin.
3. Foreign Exchange Fee: When the sender's and recipient's currencies differ, a foreign exchange fee may apply to convert the payment into the correct currency. This fee is influenced by the exchange rate and the bank's policy.
4. SWIFT Tracing Fee: If a transfer is delayed or issues arise, a bank may charge a tracing fee to investigate the problem. Not all banks impose these fees, and their structures and policies may differ, making it crucial to request a fee breakdown before confirming your SWIFT payment.

Banks and financial entities are required to pay a single initial fee to SWIFT to avail its services, in addition to yearly fees influenced by message volume, types, and length. Hence, the fees charged by banks for executing SWIFT will vary based on its fee structure and policies. More often than not, this fee is charged to the customer meaning either the sender or receiver of the money may be tasked with covering the SWIFT fees. The sender has the flexibility to opt for who bears this fee. Banks employ specific codes to monitor the fee payment responsibilities, such as:

1. "OUR" signifies that the sender covers all fees linked to the transfer.
2. "BEN" signifies that the recipient bears all fees associated with the transfer.
3. "SHA" signifies that the fees are split between the sender and the recipient.

Timelines

SWIFT payments, despite their name, are slower than expected, often taking several days for the money to reach the recipient. Delays can occur due to factors such as the number of intermediary banks involved, anti-fraud checks, international money laundering protocols, and time zone differences between the sending and receiving banks. Generally, SWIFT payments take between 3 and 5 days to be processed.

Conclusion

SWIFT has transformed global payments with its secure and standardized messaging network, enabling seamless transactions between financial institutions worldwide. Despite its efficiency, businesses often struggle with high costs, intricate fee structures, and processing delays when dealing with cross-border payments. Click here to explore how PayGlocal’s multi-currency account helps foster global commerce by overcoming these challenges.