What is SWIFT? How SWIFT works in banking and money transfers
Transferring money but have no idea what the recipient's SWIFT code is? Here’s a guide to understanding the code and why your bank asks for it before it processes an international wire transfer.
We answer questions “What is the SWIFT full form name?”, ”What is SWIFT in banking?” and “How does Swift work?” We also explore money transfer options to help you get more out of your transfers when sending money internationally.
What is SWIFT?
In 1973, SWIFT was established as a cooperative of 239 banks from 15 countries1, with headquarters in Belgium. Its primary goal then was to facilitate inter-bank communication about cross-border payments. It provided institutions with a messaging platform, a computerized routing system, and a universal framework for financial messages. The standards it developed eased automation and interoperability between banks and financial institutions worldwide.
Over the years, SWIFT has persistently sought to deliver innovative solutions that would help improve the adoption of industry standards. Today, its infrastructure serves as the backbone of international financial transactions, and it serves more than 11,000 institutions from over 200 countries and territories1 around the world.
What does SWIFT do?
Today, SWIFT provides a broad range of services that support the global financial ecosystem. It provides solutions that meet the needs of banking and payments, financial crime and cyber security, data and technology, capital markets, corporate treasury, and financial markets. The solutions it offers can be grouped into four key areas:
SWIFT serves as a standardized messaging system for exchanging payment instructions, securities transactions, and other financial information.
SWIFT provides financial institutions with the tools and platforms needed to connect to the SWIFT network and integrate with their existing platforms.
SWIFT helps institutions meet regulatory compliance and implement business intelligence more effectively.
SWIFT collaborates with central banks, clearinghouses, and other financial market infrastructures.
In this article, though, we’ll focus on its core function as a messaging system that enables banks and financial institutions around the world to securely exchange financial information and payment instructions. For this, SWIFT plays three key roles:
- Assist in international money transfers. SWIFT makes sure that funds are accurately and efficiently routed between banks across different countries.
- Reduce risks in financial transactions. SWIFT minimizes errors and averts fraud by standardizing message formats and securing communication.
- Ensure transactions are secure and fast. SWIFT has a robust infrastructure capable of transmitting sensitive financial data quickly and securely to meet the demands of global commerce.
What is the SWIFT system, and how does it work?
Let’s make one thing clear—SWIFT is not a financial institution and does not handle money directly. Instead, it provides the infrastructure that facilitates cross-border transactions. Think of it as a communication bridge that requires the use of a standard message format and relays messages among banks or financial institutions.
While actual processes may vary, here’s how the transaction process generally works using the SWIFT network.
1. The sender initiates the transfer.
The sender goes to a bank (Bank A) to request an international money transfer. Depending on the bank, the sender may be required to present any of the following:
- Sender’s government-issued ID
- Recipient’s personal information (full name, address, phone number)
- Recipient’s bank information (bank name, account number, routing code)
- SWIFT code of the recipient’s bank account
- Purpose of sending funds
2. Sending bank facilitates SWIFT message transmission.
The sending bank (Bank A) creates a SWIFT message containing the sender’s account, the recipient’s account, the payment amount, and other relevant details. It sends the payment instructions via the SWIFT network to the recipient’s bank (Bank B).
3. SWIFT validates and processes the transmission.
The SWIFT system validates the message format to make sure that it complies with global standards. If there is no direct relationship between Bank A and Bank B, an intermediary bank helps process the instructions and transfers funds accordingly.
4. The receiving bank acknowledges the message and acts on the instructions.
Bank B receives the SWIFT message and processes the payment according to the instructions. The amount is credited to the recipient’s account.
5. The recipient is notified of the transfer.
Once the amount is in the recipient's bank account, Bank B notifies the recipient of the successful transfer.
The transaction process seems complex, but keep in mind that end customers are involved only in the initial and final steps. The bulk of the process occurs between banks and within the SWIFT network. Still, when sending money abroad through the SWIFT payment system, you’ll need to know the SWIFT code.
A quick run-through of the SWIFT code
The SWIFT code is a business identifier code (BIC) used by institutions within the financial services industry. It serves as a unique identifier for entities engaged in international or cross-border financial transactions. This means every bank that facilitates transactions through the SWIFT financial system has a unique SWIFT code.
Aligned with the ISO 9362 standard, the SWIFT code consists of 8 or 11 alphanumeric characters.6
- 4-digit bank code (business party prefix)
- 2-digit country code (based on ISO-3166-1)
- 2-digit location code (business party suffix)
- 3-digit branch code (optional branch identifier)
For example, the HSBC Bank headquarters on Fifth Avenue, New York City has a SWIFT code of MRMDUS33XXX7. MRMD is the code assigned to HSBC BANK USA, US is the code assigned to the United States, 33 is the location code for the institution, and XXX indicates that it is a head office. For most international transfers to HSBC accounts in the United States, the code MRMDUS33 is accepted.
HSBC banks across the globe will each have a unique SWIFT code. Now, let’s say you’re sending money from the U.S. to someone in Mexico8 and want to course the transaction through HSBC. In this case, you will have to provide the SWIFT code BIMEMXMMXXX9 along with the complete name and address of HSBC Mexico for the recipient's bank details.
Benefits of using the SWIFT system
SWIFT codes can be confusing to common folks like us, but there are benefits to using the SWIFT system.
Security and reliability
SWIFT implements bank-level security and requires all institutions using the SWIFT network to attest compliance to a Customer Security Controls Framework (CSCF) every year10. This protects the entire network from cyber threats and reinforces the security of the global banking system.
Transaction speed
Transparency
With SWIFT, financial institutions can track cross-border transactions in real time. One of the platform’s features, the Transaction Manager12, provides a centralized view of transaction information that can be simultaneously accessed by relevant parties. This end-to-end visibility ensures transparency at every stage of the transaction process.
Ease of use
For banks, SWIFT offers a suite of tools and platforms that streamline the payment process. For instance, a payment pre-validation API13 can be used to identify payment errors upfront (typos, invalid account numbers, mismatched country codes, etc.) so customers can immediately check and correct the information they provide.
SWIFT fees and costs
SWIFT does not directly charge individuals or businesses for transactions, nor does it directly handle the movement of funds. Keep in mind that it is primarily an infrastructure, not a financial institution. Its revenue comes from membership fees and subscriptions to the solutions it offers.
Banks and financial institutions pay fees to join the SWIFT network and integrate SWIFT systems within their operations. The fees depend on the institution’s user category, user rights, and the specific SWIFT services and products14 they utilize.
However, banks and financial institutions may pass SWIFT fees to their customers. When sending money abroad through SWIFT-networked banks, you may encounter any of the following charges:
may be a flat fee or a percentage of the transaction amount charged by the sending bank
the amount varies depending on the current market and the bank rules
a markup on currency conversion rates
additional fees charged by an intermediary bank that processes the SWIFT transaction when the sending bank and recipient bank have no direct relationship
fees charged by the receiving bank
Several factors can influence the total cost of a SWIFT transaction, including:
The country of origin and destination affect costs. Transfers to certain countries may incur higher fees due to regional banking regulations or additional intermediaries.
The number of intermediary banks involved in the transaction can significantly increase the total cost.
Expedited payments often carry higher fees.
Fluctuations in exchange rates and bank-imposed margins can increase costs.
Potential problems when using the SWIFT system
One of the main problems end customers encounter when using the SWIFT system is the amount of information required for international wire transfers. When sending money through banks networked with SWIFT, senders may be asked to provide their and their recipient’s personal and bank details.
Other disadvantages of using the SWIFT system include:
Potential delays
The SWIFT process itself takes only a day or two. However, banks and intermediary institutions may have longer internal processing times. Some may take up to 7 business days15 to post international money transfers. Incorrect or missing information may also lead to delays. Even worse, you could potentially lose the transfer amount when the account number or bank identifier you use is incorrect.16
Geopolitical challenges
SWIFT operates within the context of international relations. This means that transactions may be blocked or delayed due to political sanctions or restrictions. Transfers to certain countries or individuals may not be possible.17
High transaction fees
Money transfers coursed through banks tend to come with hefty fees. Moreover, there is a risk of losing money due to poor exchange rates and hidden fees.
While SWIFT transactions are often unavoidable for large or business-related bank-to-bank transfers, there are ways to minimize fees for smaller personal or business remittances. Consider the following options for your money transfers.
- Choose banks that waive intermediary charges or offer low international transfer fees.
- Use regional cross-border payment systems such as SEPA (for euro transactions within the European Economic Area) and MEPS (for SGD transactions within the ASEAN region).
- Use money transfer services like BOSS Revolution. These often provide lower-cost options for sending small amounts abroad.
Common uses of SWIFT for businesses and individuals
For businesses and individuals, SWIFT enables secure cross-border payments and fund transfers. Businesses can use the SWIFT payment system to make international payments, settle accounts with suppliers, and manage finances across borders. Individuals can also use SWIFT to make international purchases or send money abroad.
While SWIFT is known for its robust and secure network, fees can be relatively high when processed through traditional banks. A cost-effective alternative to enjoying the same reliability and security is through BOSS Revolution Money Transfer. By offering lower fees and a seamless digital experience, BOSS Revolution makes international money transfers convenient and accessible for users who need a fast and reliable service without the high costs associated with conventional banking channels.
What is a SWIFT code?
A SWIFT code is a Business Identifier Code (BIC), which serves as a unique identifier for banks and financial institutions engaged in international financial transactions. It contains 8 to 11 characters that identify the bank, its location, and other pertinent details.
How do I find my SWIFT code?
The SWIFT code your bank uses may be found on your bank statements, on their website, or from online directories. But make sure to confirm with your bank if it’s the right code for international money transfers.
Some banks, like Deutsche Bank, have integrated SWIFT code search tools18 that help senders find the right code for the recipient’s bank. Ask the money sender if their bank app has this feature and if your bank’s Swift code is on the list.
How long does a SWIFT transfer take?
SWIFT transfer times vary depending on the sending bank, recipient bank, regulatory controls, and other factors. However according to SWIFT, 89% of cross-border payments processed on its network arrive at the recipient banks within an hour.19
What fees are associated with SWIFT payments?
SWIFT payments coursed through banks and financial institutions incur fees set by those institutions. Some fees you may encounter are currency conversion fees, transfer fees, processing fees, and exchange rate markups.
Can I use SWIFT for personal international transfers?
SWIFT is not a bank or a money transfer service provider. They do not directly handle money transfers. However, you can enjoy the security and reliability SWIFT offers by sending funds through banks under the SWIFT network.
Know your options
When it comes to bank transfers, SWIFT is a crucial part of the global financial system. It sets the standard for secure communication and seamless transactions across borders. However, it does have some drawbacks, including higher fees and potential delays.
This is why it helps to know all your options when transferring money abroad. To minimize fees and expedite fund transfers, consider using alternative international payment systems like BOSS Revolution Money Transfer.
Sources: all third party information obtained from applicable website as of December 11, 2024
- https://www.swift.com/about-us/history
- https://www.swift.com/our-solutions/global-financial-messaging
- https://www.swift.com/our-solutions/interfaces-and-integration
- https://www.swift.com/our-solutions/compliance-and-shared-services
- https://www.swift.com/our-solutions/market-infrastructures
- https://www.swift.com/standards/data-standards/bic-business-identifier-code
- https://bank.codes/swift-code/united-states/mrmdus33/
- https://www.hsbc.com.mx/internacional/transferencias-internacionales/
- https://bank.codes/swift-code/mexico/bimemxmm/
- https://www.swift.com/myswift/customer-security-programme-csp
- https://www.swift.com/news-events/press-releases/swifts-cross-border-payments-processing-speed-surpasses-g20-target
- https://www.swift.com/our-solutions/swift-platform-evolution/enhanced-swift-platform-payments
- https://www.swift.com/products/payment-pre-validation
- https://www.swift.com/about-us/legal/corporate-matters/swift-user-categories#swift-user-categories%C2%A0and-usage-rights
- https://www.us.hsbc.com/international-banking/international-payments/
- https://www.us.hsbc.com/international-banking/international-payments/#:~:text=What%20information%20do%20I%20need%20to%20provide%20the%20sender%20in,BIC%20(Business%20Identifier%20Code)
- https://www.swift.com/about-us/legal/compliance-0/swift-and-sanctions#does-swift-comply-with-all-sanctions-laws
- https://www.deutsche-bank.de/pk/shared/trxm/help-en/konten/konten-ueberwausland.html#parsys-columncontrol_copy-columnControlCol2Parsys-accordion_399963029_-accordionParsys-accordionentry_copy__2028868094
- https://www.swift.com/news-events/press-releases/swifts-cross-border-payments-processing-speed-surpasses-g20-target
This article is provided for general information purposes only and is not intended to address every aspect of the matters discussed herein. The information in this article is not intended as specific personal advice. The information in this article does not constitute legal, tax, regulatory or other professional advice from IDT Payment Services, Inc. and its affiliates (collectively, “IDT”), and should not be taken or used as such by any individual. IDT makes no representation, warranty or guaranty, whether express or implied, that the content in this article is current, accurate, or complete. You should obtain professional or other substantive advice before taking, or refraining from, any action on the basis of the information in this article.
