SWIFT Payment System: What It Is, How It Works & Other FAQs

SWIFT Payment System 🌐

As companies continue to go beyond national borders, their need to be able to send and receive money evolves as well. The SWIFT payment system has played a pivotal role here.Interestingly, SWIFT doesn’t send money directly; instead, it sends a payment order with instructions for transferring money between banks. The transfer instructions are conveyed through a standardized message system using three-digit codes, and they’re sent across the network using the receiving bank’s unique SWIFT code. Once the payment order is received, the banks then settle the transfer between their accounts.In short, SWIFT is essentially a messaging network that banks, companies, and other organizations use to facilitate financial transactions around the world. This post will answer all your questions about the SWIFT payment system, including what it is, how it works, and if you should use it for international payments.

What is a SWIFT payment? 💸

A SWIFT payment refers to payment transactions that use the SWIFT payment network.

How does the SWIFT payment system work? 💭

SWIFT payments work by using a system of standardized codes to send messages and instructions for financial transactions. There are two main types of codes used by SWIFT:

The financial institution’s code: Each institution on the SWIFT network also gets its own SWIFT code, which is a type of Business Identification Code (BIC). The code is between eight and 11 characters long, and the digits signify the institution, the country, the location, and the branch (if applicable).

SWIFT message type: This is a three-digit code that conveys the instructions for the financial transaction between institutions. For example, MT 103 is the code for “Single Customer Credit Transfer” and provides instructions for a fund transfer.

To pay your international contractors or employees, you’ll need the usual info from your employees (name, address, bank account number) plus the receiving institution’s unique SWIFT code. Your bank would send instructions for a payment to your employee’s bank. Once the payment code is received, the money clears and is deposited into your employee’s bank account.Let’s say you’re sending a payment to your contractor, Anna, in Germany. Your bank’s own SWIFT code is PNCCUS3C. “PNCC” is the institution code for PNC, “US” is the country code, and “3C” is the location code. The receiving bank — where Anna’s account is held — has a SWIFT code of BEVODEBBBBK. “BEVO” is the institution code for Berliner Volksbank, “DE” is the country code for Germany, “BB” is the location code, and “BBK” is the code for Anna’s particular branch.Your bank will send a message type to Anna’s bank indicating a payment. Anna’s bank will send back a message confirming it, the funds will clear, and the payment will be deposited into her account.Your bank may use an intermediary through the SWIFT network, if they don’t already have a relationship with your employee’s bank, in order to get the payment through. In this case, several banks would communicate with each other using SWIFT messages to transfer the funds, and this can introduce higher fees or even delays.

Are SWIFT payments safe and secure? 🔒

Yes, SWIFT payments are considered safe and secure. The SWIFT network is known to use strict security measures (e.g., encryption, authentication, and digital signatures) to ensure that only authorized parties can access, send, and receive messages through the network. It also requires all participating banks to adhere to strict operational and security standards.While 100% security and safety cannot be guaranteed, the measures the SWIFT payments network has in place make them a safe and secure way to handle international payments.

Are there any fees for using SWIFT payment? 󠀥💰

Yes, there often are fees for using the SWIFT network – whether you’re doing domestic or international transactions. The fee amounts vary based on a number of factors, such as:

The terms and conditions set out by the specific banks involved in the transaction (i.e., the sending and the receiving banks)

The amount of payment

The type of payment being made

The currency exchange rate, if applicable

Any relevant administrative charges

Because there’s no one set fee, it’s important to check with your bank or financial institution exactly how much it will cost you to send SWIFT payments.

What is a SWIFT code for a bank? 🔐

Each bank that participates in the SWIFT network gets assigned an 8-11-character SWIFT code, also known as a Bank Identifier Code (BIC). These characters are broken down into:

First four characters: Identifies the bank

Next two characters: Identifies the country where the bank is located

Final two characters: Identifies the location within the country where the bank in question is

Optional three characters: Identifies the branch of the bank

This means that a SWIFT code of "CMFGUS33" would identify the bank "CMFG," located in the United States, at the location "US33." SWIFT codes are required in many financial transactions – especially international payments.

How long does it take for a SWIFT payment to clear? 📆

In general, SWIFT payments take several business days to clear – especially if it involves international transactions. However, the exact timing depends on a number of factors, such as:

The banks involved in the transaction (e.g., if there are intermediary banks, the processing time can take longer)

The currency being transferred

The date the transaction takes place (e.g., it may take longer if a SWIFT payment is made over the Christmas period or other bank holidays)

You’ll want to confirm the actual payment processing time with your bank or financial institution.

Can I use SWIFT payment for domestic transactions? 🇺🇸

Yes, you can use SWIFT payment for domestic transactions. However, this may not be the most cost-effective or even fastest payment method. In the US, for example, domestic wire transfers can be initiated and completed on the same business day. Also, if the process involves two branches of the same bank, then the transaction often doesn’t incur a charge.Payments completed via the SWIFT system, on the other hand, may take longer to complete and could also be subject to additional fees. As usual, it’s imperative that you check with your bank or financial institution if this is the best payment option for you.

Can I use SWIFT payment for e-commerce transactions? 💻

Yes, it’s possible to use SWIFT payment for e-commerce transactions – in some cases. However, this may not be the online vendor’s preferred method. Credit card payments or online payment systems, such as PayPal, are often faster, easier, and cheaper.

Can I use SWIFT payment for recurring payments? 🔁

Yes, you could set up a recurring SWIFT payment (otherwise known as automated or scheduled payment) to automatically handle regular transactions – for example, a monthly bill or subscription. However, this isn’t always available and if they were, the terms and conditions that govern these transactions can vary from bank to bank (or financial institution to financial institution). If this is something that you’re considering, make sure to check the details before you initiate a transaction.

Can I use SWIFT payment for small-value payments? 🪙

Yes, you can set up small-value payments via SWIFT as there is currently no amount limit set for such transactions. However (and as has been previously mentioned), this may not be the best option for you – especially in terms of cost and convenience.

Can I use SWIFT payment for payments in different currencies? 💱

Because the SWIFT payment system is often used for international transactions, you can use it for payments in multiple currencies. You’ll have to ensure that the receiving bank can accept the currency of your choice and that you’re aware of additional charges you may incur (e.g., currency conversion fees).

Can I cancel a SWIFT payment once it has been sent? ❌

SWIFT offers a stop and recall service, designed to prevent fraudulent activity. If you have an issue with your SWIFT payment and you’d like to cancel it, please contact your bank or financial institution immediately.

Can I track the status of my SWIFT payment? 🔍

Yes, SWIFT offers participating banks universal real-time payment tracking, which includes information on the payment processing stage (e.g., sent, received, or credited). If you need this information, simply contact your bank or financial institution.

How does SWIFT facilitate international payments? 🌎

SWIFT’s global network facilitates international payments between banks and financial institutions by allowing them to safely, consistently, and efficiently communicate with each other in a secure and standardized way. This, in turn, makes cross-border payments easier.

Can I use SWIFT for all types of international payments? 💵 💷 💴

No, you cannot use SWIFT for all types of international payments. While widely supported by banks and financial institutions worldwide, it is but one of many international payment options – some of which may be better suited to your needs. In addition, the SWIFT payment system isn’t always available. At the time of writing, for example, they have disconnected several Russian and Belarussian entities in compliance with EU laws and regulations. If you need to send payment to people who use these entities, you will not be able to do it via the SWIFT network.

What are the benefits of using the SWIFT payment system? 👍

The biggest benefit to SWIFT is that it provides a way for organizations to quickly and securely transfer funds, particularly internationally. SWIFT was formed in 1973 and revolutionized the way cross-border payments were made. Its standardized system of codes replaced the manual, error-prone Telex system that was then in wide use. SWIFT remains one of the most trustworthy, efficient methods for cross-border payments today: according to The Economist, analysts believe that about 90% of the money transferred across borders in the past year went through SWIFT.SWIFT uses data encryption for security and provides visibility for banks so that they can track payments in real-time and solve issues efficiently. For payments made through SWIFT gpi (Global Payments Innovation), “nearly 50% … are credited to end beneficiaries within 30 minutes, 40% in under 5 minutes, and almost 100% of gpi payments are credited within 24 hours,” according to SWIFT.For companies who need to manage international payroll, the infrastructure is all there through SWIFT. They can easily trace payment transfers to their contractors, and they can make payments to any number of parties all over the globe, thanks to the reach of SWIFT’s network. SWIFT also uses a standardized messaging system to send payment orders, which helps ensure accuracy.SWIFT can send messages, using codes, for a variety of actions, including security transactions and trade transactions. But the bulk of SWIFT “traffic” (messages sent across the FIN) are related to payments. Out of more than 41 million messages per day in November 2021, nearly 19 million were payments. It’s a trusted, reliable method for sending payments globally — as shown by the sheer volume of payment messages sent across the network.

Are there any potential risks or drawbacks to using SWIFT payment for international payments? 👎

The SWIFT payment method presents a few challenges for companies who are using it to submit their international payroll.

Fees can quickly add up.

Banks charge wire transfer fees — particularly for international transfers — as well as currency exchange fees. Depending on the size of your payroll and where your employees are located, these fees can quickly add up.According to NerdWallet, the median wire transfer fee for outgoing international payments is $49. Depending on the size of your international payroll and how often your company processes payroll, those fees will multiply, creating additional costs.The chances are good that your SWIFT payment will need to go through an intermediate bank, especially for remote teams, since your bank may not have relationships with those of your international employees. In that case, fees may apply for each institution, which increases the impact on your payroll burden.

It’s hard to get visibility into payments.

Delays and fees on the receiving end both make it difficult to plan when your international employees will receive payment and know exactly how much they’ll be receiving.If the employee’s bank charges fees for international wire transfers, those will get deducted from their payment. Currency exchange rates also may not be in their favor. In the U.S., banks typically offer exchange rates that are about 2–4% worse than the base exchange rate, according to Exiap. That’s less money in your employees’ hands once their payments are processed.This can obviously create stress for your employees, leading to a negative employee experience and harming your remote work culture. You might even lose staff members completely if it costs them money just to be paid by your company. Plus, it creates more work for your team to manage payroll properly, answer questions, and sort out issues.

Payment delays can lead to compliance risks.

When payments are delayed and your employees don’t receive them on time, you could be at risk of breaching your employment contracts.Going through intermediary banks can lead to delays, causing payments to take as long as five business days. Manual input errors can also lead to delays in processing while the errors are sorted out. Harry Newman, then-head of banking at SWIFT, told LSE Business Review that incorrect data inputs are one of the most common causes of delays in payment processing.

SWIFT Challenges Are Easy to Overcome — With the Right Payroll Tools 🙌

You need to be aware of fees and potential delays if you’re planning on manually managing your international payroll with SWIFT payments, so you can be sure they aren’t negatively impacting your employee experience. And if they are, there’s another method for making cross-border payments that you can use: a local bank transfer, or local payment.The process works similar to SWIFT, using a network of financial institutions to transfer funds internationally. Unlike SWIFT, though, the transfer is processed by a local bank and settled through a local payment system, such as the Single Euro Payments Area (SEPA). Local payments often have lower or no fees compared to SWIFT because they don’t add up from intermediaries. Payments are received faster, and the process is easier to manage and less prone to errors.Plane supports payments in 240+ countries, with local currency payments and bank transfers available in 70+ countries. We validate SWIFT codes, provide support, and track payments to make sure they’re posted to your contractors when necessary.You can automatically schedule payments and payment frequency for contractors in over 240 countries, simplifying the process for paying your international contractors.Learn more about how to reliably manage your international payroll through Plane by speaking with one of our experts.