Ultimate Guide to SWIFT Payments

As more and more companies expand their businesses abroad, they need a safe way to facilitate international payments. Overseas transactions often use a network or intermediary institution to manage the process. In Europe, this network is called the SWIFT banking system. SWIFT is a crucial element of international financial systems. Here’s what you need to know about SWIFT, how it works, and why it’s important.

What is a SWIFT payment?

Businesses access the SWIFT network through participating banks to send and receive international electric payments. Businesses to send and receive international electronic payments. The SWIFT network doesn’t transfer funds, and it is not a bank. Instead, it sends payment orders to banks using SWIFT codes; essentially, SWIFT acts like a messenger between banks.

The SWIFT payment system is one of the major ways entities and individuals can safely transfer money overseas. Anyone can use the payment network even if they use a different bank than the payee.

A few key features of the SWIFT payment system include:

• Network availability: SWIFT has a network availability of 99.999%, meaning the service is reliable.
• ISO 20022 standard: The ISO 20022 standard for payments ensures smooth and efficient transfer processes.
• Transaction fees: SWIFT charges a fee for each message, though costs depend on the message type and country. For example, a transfer from the United States to Europe may have lower fees than one to Asia.

Who owns the SWIFT banking system?

SWIFT isn’t owned by a single entity. It is a member-owned cooperative that has around 3,500 members represented by shareholders. The central banks of the G10 countries, the European Central Bank and the National Bank of Belgium, oversee SWIFT. SWIFT’s board of directors:

• Manages SWIFTS’ day-to-day operations
• Grows the SWIFT system globally while maintaining neutrality
• Oversees security, operational performance, business continuity, risk identification, and resilience

Local payment systems Vs SWIFT for cross-border payments

Local payment routes are payment methods and systems for transactions within a specific country or region. Local routes are often faster and more cost-effective than SWIFT. Local payment providers use a network of local bank accounts to access domestic payment schemes, removing the need for intermediary banks and cutting unnecessary fees.
Companies can use local routes and settle payments through:

• Bank transfers between accounts within the same country
• Digital wallets specific to a region
• Cash vouchers used for specific purchases
• Local debit networks that are popular in certain regions
• Open Invoicing where a business sends an invoice and the recipient pays directly into the business’s bank account

Examples of local payment schemes include ACH (Automated Clearing House) in North America, SEPA (Single Euro Payments Area) in Europe and Faster Payments in the UK. These scheme-based transfers allow businesses to pay as if they were located domestically and settle multiple currencies locally without cross-border fees.

What is a SWIFT Code?

SWIFT codes are unique identifiers SWIFT assigns to every financial institution that uses the network. SWIFT codes—also known as SWIFT IDs or ISO 9362 codes—have 8 or 11 characters that represent:

• Characters 1-4: The code for the financial institution
• Characters 5-6: The country where the institution is based
• Characters 7-8: The city code and the institution’s location
• Characters 9-11: Optional characters that identify the banking institution’s branch

As the most widely used cross-border payment system in the world, SWIFT users complete transactions using a variety of payment methods.

What are cross-border payments?

SWIFT facilitates safe cross-border payments, which refers to any transaction where the payer and the payee are located in different countries. Cross-border transactions can occur between businesses, financial institutions, businesses and consumers, and between consumers.

Payment methods SWIFT accepts:

Wire transfers: A wire transfer is an electronic transfer of funds between two banks or financial institutions. This type of payment is commonly used for large transactions.
Credit cards: Businesses accept payments from customers in different currencies, often subject to conversion fees and other charges.

Payment service providers: Payment service providers support all sorts of payment methods, which is why they’re convenient for international payments.
Forex: Forex (FX) is a global electronic marketplace for trading international currencies. It has no central physical location, but most of the trading is done through banks, brokers, and financial institutions.
Digital wallet: A software-based system or application (usually on smartphones, kindles, computers, and tablets) that stores payment information and passwords of payment methods and websites.

SWIFT vs. other means of Cross border payments

Payers and payees can make cross-border payments using SWIFT or other methods, such as Global ACH.
The SWIFT network is one type of cross-border payment. Though a commonly used method for banks, some financial institutions have dedicated rails and use those instead of SWIFT.
Advanced payment platforms can access these dedicated rails—systems and networks that move money between parties—and use SWIFT when necessary for cross-border payments.

SWIFT transaction process

Carrying out international payments using SWIFT payment system requires businesses to follow a few steps:

1. Contact your bank: Give your bank the transaction details, such as the recipient’s name, bank name, account number, amount, currency, and any other relevant information, such as the SWIFT transaction code.
2. Complete the required forms: Your bank will provide you with forms to initiate the SWIFT transaction. These forms typically include information on the originator and beneficiary of the transaction, the amount to be transferred, and the currency involved. Banks will also take steps to check for fraudulent activities or compliance issues through SWIFT transaction screenings.
3. Provide payment: Once you complete the forms, you will need to provide payment. This involves transferring the funds from your account to your bank’s account and can include SWIFT transaction fees. These fees depend on your bank, transaction type, and currencies exchanged.
4. Wait for confirmation: After initiating the transaction, you will receive confirmation that the funds were transferred successfully. This can take several hours or days. You and your bank can use SWIFT transaction tracking to monitor the status of the transaction sent through the SWIFT network.

How SWIFT payment system facilitates international money transfers?

SWIFT’s global network facilitates secure, efficient communications between banks and financial institutions during transfers. SWIFT’s vast network of international financial institutions and banks makes it easy to complete global transfers. SWIFT remains one of the most common payment transfer methods because its standardized codes and data encryption allow banks to track payments in real-time and immediately solve issues.

What is the required information for SWIFT transfers

To conduct global transactions with SWIFT, you need the following information:
The name of the person receiving the money
Recipient’s address
The name and address of the bank receiving the money
SWIFT code of the bank (also called BIC)
Recipient’s account number or IBAN
The SWIFT code identifies the bank, while the IBAN (International Bank Account Number) refers to a specific bank account.

SWIFT alternatives

Though SWIFT is widely used, businesses have plenty of alternatives to facilitate cross-border payments, including:

Other banking networks

Global ACH (also called International ACH Transfer) moves money between US and foreign bank accounts using country payment rails, including EFT, SEPA, BACS, and BECS.
Businesses can also use domestic banking networks such as Fedwire (US), CIPS (China), BACS (UK), BECS (Australia), and EFT (Canada) to process international payments.

Card networks

International card networks (eg Visa, Mastercard, Amex) are additional ways businesses can process payments from foreign customers. Card payments are good options for cross-border transactions because they’re widely accepted, convenient, and secure.
Card transactions may be subject to currency conversion fees and other charges. Typically, card networks use the SWIFT infrastructure so these transactions have similar challenges, such as slow settlement.

Fintechs

Fintechs layer services on top of banking networks, leveraging their APIs or rails to move money internationally. Specifically, global payment platforms offer features like instant payments, payment guarantees, and dedicated rails that factor in local regulations.

One of the biggest benefits of payment platforms is that you can make mass payments, automate or schedule payments, and split payments in multiple currencies. These features allow you to pay suppliers, businesses, and employees in any way you need.

Blockchains and cryptocurrencies

A blockchain is a shared database or ledger that’s distributed among a computer network. It is not subject to their operating times, geographical constraints and is territory agnostic with a transparent protocol for every user.
Blockchain users pay each other directly, eliminating the need for third-parties. One of the challenges of blockchain, however, is that it’s unregulated and their value can be volatile.

SWIFT payments cost

SWIFT payment costs include fees from the sender’s and recipient’s banks, foreign exchange fees, and tracing fees. Payment costs depend on the originating and receiving country banks, the number of intermediaries, and fx fees. Your bank will have the most up-to-date information on payment costs and can provide a breakdown of each fee.

Global payment innovations, compliance, and additional SWIFT services

The SWIFT system offers many services that contribute to its seamless international transactions. These include:

• Compliance services: SWIFT offers reporting and utilities for Know Your Customer (KYC), Anti-Money Laundering (AML), and Sanctions.
• Business intelligence: Universal business intelligence dashboards and reporting utilities give customers a full view of messaging, activities, reporting, and trade flow.
• Messaging and connectivity solutions: SWIFT’s purpose is to facilitate communication, moving messages in a safe, reliable network.

Papaya Global’s payment services are offered through Azimo, Papaya’s licensed payments arm. Azimo is a payment services provider regulated in five Tier-1 jurisdictions. These licenses allow Papaya, together with its partners, to provide workforce payments worldwide. For further information on Azimo’s licences worldwide, check our licensing page

Papaya Global vs Custom bank files

Unlike Papaya Global, which supports flexible payouts and funding, split payment,s and recurring payments, custom bank files lack the capabilities, AI functions, and security measures of our global payments platform. Automating payments and processes with maximum customization allows businesses to avoid error risks that come from manually inputting information into a spreadsheet.

Advanced reporting and BI tools enable you to leverage payment data and make data-based decisions to empower your business. Save time, make smarter decisions, and avoid errors by swapping spreadsheets with Papaya Global.