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August 25, 2022

What Are SWIFT Payments?

Learn what a SWIFT payment is and how it works in this complete guide to SWIFT payments, including the benefits, drawbacks, and intended uses.

SWIFT Payments Meaning

SWIFT payments are transactions made via the SWIFT network, an international messaging system.

The term stands for “Society for Worldwide Interbank Financial Telecommunication.” This group was founded in 1973, and it has since become the leading financial messaging network.

SWIFT itself does not manage bank accounts or hold money. Instead, it handles messages that contain payment instructions, which are settled through banks and other financial institutions.

So, what is a SWIFT payment? Let's get into more detail:

When might I use a SWIFT payment?

Several types of institutions use the service, including banks, brokerages, securities dealers, asset managers, clearinghouses, foreign currency exchanges, depositories, and treasury market participants.

As an everyday user, you will most likely encounter SWIFT if you send a wire transfer through your bank, payment processor, or a similar service.

How Do SWIFT Payments Work?

SWIFT payments involve several steps, largely carried out by banks behind the scenes. Each transfer is different. Below is one way in which a SWIFT transfer might be carried out.

Step 1: The client requests a transaction

First, a client requests an international transaction or a wire transfer via a bank. The bank will quote an exchange rate and transaction details, which the client must agree to. 

At this point, the bank will usually draw money from the sender’s account.

Step 2: The SWIFT message is composed

Next, the bank must compose a SWIFT message that contains the necessary data.

SWIFT messages contain a large amount of information concerning the transaction, but the most important piece of data is the banking code of the receiving financial institution. This is sometimes known as the bank identifier code, SWIFT ID, or ISO 9362 code. 

The eight or eleven characters in the SWIFT code represent the name of the receiving financial institution, its city and country, and, optionally, its branch number.

Step 3: The SWIFT transfer is executed

Next, the bank will send its SWIFT message to the receiving institution.

This is not always a direct message. SWIFT messages may involve a chain of transfers between three or four intermediary banks that relay the request to its final destination.

Step 4: The transaction is finalised

Once the receiving bank processes the message, the requested transaction will be finalised. The transaction amount will be credited to the recipient, and the transaction will be reflected in each user’s account---as is the case with most other bank transactions.

How Long Do SWIFT Payments Take?

Domestic SWIFT payments take anywhere from a few hours to a full day. However, international transactions can take up to five days.

Various factors may affect the speed of SWIFT payments. Most importantly, the number of banks involved in a transfer can affect its speed. As a result, transactions to foreign countries may take longer than domestic transactions due to the need for several relay points.

Each bank’s specific policies can affect transfer speeds. Some regions have stricter know-your-customer (KYC) and anti-money laundering (AML) checks than others. Some banks simply use different data standards or have a lower capacity to process data. SWIFT transactions can also be delayed by weekends and bank holidays, as many banks do not operate on those days.

Ultimately, the speed of a SWIFT payment depends on precisely which countries a message goes through, the number of intermediaries it goes through, and the time at which it is requested.

What Are The Fees And Costs Associated With SWIFT Payments?

Like most banking services, SWIFT payments are not free. In fact, the SWIFT payment system carries multiple costs for users and banks alike.

SWIFT fees

SWIFT itself charges fees to banks, including a one-time membership fee, a tracing fee that allows banks in the SWIFT banking system to check the status of messages and transfers, and various other support charges. 

Banks are also charged based on the type of message they send and the length of those messages, as well as the number of messages that they generate and send.

Ingoing and outgoing fees

Although banks pay fees directly to SWIFT, they usually pass on those costs to their clients through per-transaction fees.

Because SWIFT payments are often involved in wire transfers, banks charge users accordingly. Users may pay a fee for outgoing transfers, inbound transfers, or both.

Though each bank sets its own fees for wire transfers, rates are somewhat competitive. Estimates suggest that wire transfers typically cost between 15 and 50 USD for end users.

Fee 3: Currency conversion fees

If a SWIFT payment involves changing one currency to another, banks will usually charge a conversion fee. This fee is often equivalent to 3% to 5% of a transaction.

In short, SWIFT payments come with plenty of expenses, many of which are passed on to bank clients.

What Are The Benefits Of SWIFT Payments?

SWIFT payments offer several benefits, largely due to their long history and popularity.

Widespread support

The fact that SWIFT and its messaging standards have existed for almost 50 years means that the system is widely recognised all around the world.

Over 11,000 financial institutions in 200 countries are now part of the SWIFT network. Almost half of all large international payments now rely on SWIFT, and there are approximately 45 million messages sent on the SWIFT network every day.

Few other payment networks have such a wide reach, and the service is available almost universally.

Transparency and traceability

Though customers may rely on SWIFT payments due to necessity rather than choice, banks clearly prefer the SWIFT messaging system. 

SWIFT payments have likely become a success among banks because it allows institutions to closely manage payments and related messages. SWIFT’s GPI (Global Payments Innovation) service allows banks to track and trace transfers globally in real-time.

SWIFT payments also make other information such as fees and processing times transparent to banks. This makes it easy for banks to provide service estimates to their customers.

Highly secure and regulated

SWIFT payments are highly secure, as it offers services that comply with international regulations and security protocols that are widely used by leading banks.

SWIFT’s extensive compliance with government agencies and regulators has been criticised by those who advocate for user data privacy. However, institutions that require this sort of regulatory compliance likely see such cooperation as a benefit rather than a risk.

What Are The Disadvantages Of SWIFT Payments?

SWIFT payments also have several downsides, as the network has arguably struggled to keep up with modern payment innovations.

Slower than alternatives

SWIFT payments are not always completed quickly. Multi-day transactions are extremely slow compared to other cross-border payment services and credit cards.

However, recent improvements, such as SWIFT GPI, promise to improve settlement speeds. SWIFT says that 92% of cross-border GPI payments are finalised within 24 hours. Furthermore, it says that 40% of GPI transactions are finalised within half an hour.

High costs and inefficiency

SWIFT payments are quite expensive for banks. According to data from Deloitte, institutions that use SWIFT may pay tens of thousands of euros on SWIFT payment charges to install and maintain their connection to the network.

Transactions that use SWIFT payments, such as wire transfers, are also expensive for users. Often, fees are expensive and set at a flat rate. As such, small transactions may be sent more inexpensively by PayPal and remittance services, which usually charge percentage-based rates.

Vulnerability to sanctions

The closed nature of SWIFT payments means that banks can be banned from the network. In 2022, various SWIFT member countries agreed to remove seven Russian banks from the network following the country’s invasion of Ukraine.

This is not the first time that banks have been banned from SWIFT. Certain Iranian banks were banned in 2012 in compliance with orders from the EU Council. Pro-Palestinian activists also called for SWIFT to deny access to Israeli banks in 2014, though SWIFT did not comply.

While this may be a concern for sanctioned banks, it does not necessarily affect end users, who may be provided with other ways to transfer funds across borders.

What Types Of SWIFT Payments Are There?

SWIFT is a highly versatile system, and it has dedicated categories for various types of payments and messages including international payments. Each category of SWIFT payment is broadly outlined below.

Bank payments

Banks may use SWIFT payments to manage customer payments and chequing (both of which fall under category 1 of SWIFT's message types). 

Financial institutions can also use SWIFT payments to handle interbank transactions, such as sending cheque collections and cash letters between institutions (categories 2 and 4).

Additionally, banks can use SWIFT payments to handle traveler's cheques (category 8), send messages regarding cash management and customer status (category 9), and handle secure data such as instructions and confirmation messages (category 5).

Treasury and forex transactions

Financial institutions can use SWIFT payments to handle messages related to treasury markets (category 3).

In this case, an institution may use SWIFT payments to handle foreign exchange contracts or foreign exchange options. It may also use SWIFT payments to place money in connection with loans and deposits or to manage interest rate derivatives.

Additionally, institutions may use SWIFT to manage metal and syndication trading (category 6), another area within the treasury market.

Securities transactions

Finally, institutions can utilise SWIFT to handle messages and transactions related to the securities market (category 5).

Securities are a particular asset class that includes capital-raising financial instruments such as equities and debts. Financial institutions can use SWIFT to handle transactions related to trading, settlement, and registration of securities. 

Institutions can also use the network to handle messaging related to corporate actions and portfolio advice. As such, SWIFT is not strictly limited to transaction settlement.

Additional SWIFT Payment Services

SWIFT’s products and services can be broken down into three main categories.

The messaging network

SWIFT’s messaging system is operated from three data centres located in the U.S., the Netherlands, and Switzerland. It operates many services under different names, but the most notable service is the SWIFTNet network, which encompasses most of its services. 

Client applications

Naturally, banks must connect to SWIFT through specific applications and software. SWIFTNet Link is the main way in which financial institutions connect to SWIFT. 

SWIFT’s GPI service, which was introduced in 2018 and is intended to improve the speed of the network, is another option for institutions that use the network. 

Dozens of other applications and services are available as well. 

SWIFT standards

Last but not least, SWIFT defines the syntax standards used for financial messages. 

These standards are used both on SWIFT itself and on other financial networks. They are designed in conjunction with various organisations. SWIFT works with the International Organization for Standardization (ISO) to maintain these standards.

Common Questions About SWIFT Payments

Who pays SWIFT Payment charges?

The sending party can select three options for payment of the charges. These are:

1) OUR: The sender pays all expenses, including theirs and those of the payee’s bank, on top of any third-party fees if more than one bank is used.

2) BEN: All expenses are paid by the recipient.

3) SHA: Each party pays their own fee, sharing the transaction costs.

Do all banks have SWIFT?

SWIFT is a messaging service used to easily send international transactions. It is currently used by 11,000 financial institutions in 200 countries. However, SWIFT is an optional service, and many smaller banks in the U.S. and most credit unions will not be members of the SWIFT network. For large institutions with a global presence, it is vital to have access to SWIFT.

What is the difference between SWIFT payments and SEPA payments?

The Single Euro Payments Area ( SEPA) is a payment network for members of the European Union and is used for transactions denominated in the euro or other European currencies.

Are SWIFT payments free?

No, SWIFT payments require transfer fees, which can be paid by the sender and the recipient.

Can I receive money through SWIFT?

Yes, if your bank is a member of the SWIFT payments system or has an agreement with a third-party member, you can receive international payments via the SWIFT network.

What are the limits of a SWIFT payment?

There are no minimum or maximum transfer limits imposed on SWIFT payments. If the sender’s account has sufficient funds, they can send as much as they like.

How Payset Can Help

Note only can we explain what a SWIFT payment is, Payset can facilitate SWIFT transactions and other types of international transactions. Here are some benefits you can take advantage of by using Payset for SWIFT transfers.

Lower transaction fees

Banks may charge you a flat rate for a wire transfer when you make SWIFT payments, but Payset provides fees based on your risk level. See our full list of fees to find out how much you might pay for a SWIFT transaction.

Avoid currency conversion

Instead of converting your funds to a foreign currency at the time of your transfer, you can hold multiple currencies at once in Payset’s multi-currency account. Holding different currencies means that you can avoid conversion fees when you make your transfer.

Other alternatives to SWIFT payments

With Payset, you are not limited to SWIFT payments if you want to make a cross-border transaction. You can also take advantage of SEPA transactions or our international payments card to complete your transaction if you prefer those means of payment.

Get started today to learn more or to register for an account.

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Frequently asked questions

What is a multi-currency account/virtual IBAN?

A Payset multi-currency account allows you to receive money in 34 different currencies and send money in up to 38 currencies, all within the same account.

You can deposit and withdraw funds, convert currencies at competitive exchange rates, and hold your chosen currencies to capitalize on market movements.

A Payset multi-currency account allows startups and business owners to receive payments from clients virtually anywhere in the world and pay suppliers, staff, and contractors quickly and affordably in their chosen currency.

  • Funds can be deposited and withdrawn from the account for a small fee.
  • Account holders can send and receive money with other Payset users for free.
  • Depending on your region, you can use various payment networks from your Payset account, including SWIFT, SEPA, ACH, Fedwire, Faster Payments, BACS, and CHAPS. 
  • Once you register an account, you will be provided with a Virtual IBAN (International Bank Account Number), which makes all of these transfers easy.
  • We provide you with local payments and collections. For example, transactions in USD, EUR, CAD, and GBP are processed through the local payment networks, which is far cheaper and takes minutes as opposed to days

Are there limits on the amount of money I can send and receive?

No, there are no transaction limits on Payset multi-currency accounts.

However, higher-volume transactions may require additional anti-fraud verification. If you plan to make a large transaction, contact us in advance to avoid verification delays.

How is Payset regulated?

Payset is regulated as an authorized Electronic Money Institution by the UK Financial Conduct Authority. Our activities are also regulated by the Payment Services Regulation 2017 and the Electronic Money Regulation 2011 (SI 2011/99).

How do I send money from my account?

Once you have opened your verified IBAN account and added money to a balance, transferring funds is simple.

Simply log in into your account and add a beneficiary, then simply “make a transfer” in your preferred currency to that beneficiary.

Information contained in this publication is provided for general education and information purposes only and should not be construed as legal, tax, investment or other professional advice or recommendation, or an offer of, or solicitation for, any transactions or any other actions (or refraining therefrom); This material has been prepared without taking into account any particular recipient’s financial objectives or situation. We make no warranty, guarantee or representation, whether express or implied, as to the completeness or accuracy of the information contained herein or fitness thereof for a particular purpose; Use of images and symbols is made for illustrative purposes only and does not constitute a recommendation or advice to take or refraining from any action; Use of brand logos does not necessarily imply a contractual relationship between us and the entities owning the logos, nor does it represent an endorsement of any such entity by Pay Set Limited, or vice versa; Market information is made available to you only as a service, and we do not endorse or approve it; Any reference to past performance, predicted returns, or likelihood performance scenarios may not reflect actual future performance and certainly do not guarantee future outcomes.

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