What are SWIFT Payments and How Do They Work?

The ultimate guide to SWIFT payments in 2024.

SWIFT: The Multi-Faceted Global Payment System

Interestingly, commerce and payment systems go hand in hand. In modern times, where global trade is possible due to technological innovation and advancements, there is a need for cross-border payment methods to complement international business perfectly. For centuries, the banking sector has consistently developed new means to facilitate remote exchanges. One of the unique innovations of the banking and finance industry is the SWIFT payment system, which has grown to become one of the leading means of cross-border payments today.In this article, we’ll learn about the history of SWIFT, its underlying mechanisms, pros, and challenges, as well as another unique borderless business banking alternative. Without further ado, let’s delve in.What is SWIFT?SWIFT is the acronym for the Society for Worldwide Interbank Financial Telecommunications. The organization has its headquarters in La Hulpe, Belgium. Its main components are a messaging platform, message standards, and a computer system for message routing and validation. The origins of SWIFT can be traced to the use of telex, cable technology, and telegraphy in banking telecommunications from as far back as the late 1840s. However, it slowly became clear that a different and sustainable solution was required – one capable of scaling to cope with the volume of international payments while reducing operational risks like error rates and security.Thankfully, in 1973, almost 250 banks across 15 nations met to discuss the situation. Eventually, the cooperative utility SWIFT was founded. The network went live in 1977 and quickly gained prominence as the standard for international transactions. Today, SWIFT spans every continent, including more than 200 nations and over 11,000 institutions globally. The network constantly innovates and improves its system for industry-standard adoption and value creation. Who Uses SWIFT? When it was founded, SWIFT was designed to facilitate communications regarding correspondent and treasury transactions alone. However, the design of its message format makes the system highly scalable. Today, several industries use the SWIFT network, including:

Banks
Exchanges
Corporate business houses
Treasury market participant
Asset management companies
Brokerages
Depositories
Individuals making cross-border wire transfers

What Services Does SWIFT Provide?SWIFT’s network provides several services that benefit businesses and individuals to complete accurate and seamless business transactions. Here are some of its services:

Applications
SWIFT networks facilitate access to various forex, treasury, banking, and securities market infrastructure applications. Interbank payment instructions and settlement instructions for derivatives transactions, forex, securities, and payments are all facilitated by SWIFT.
Business Intelligence
One of SWIFT’s latest innovations is its business intelligence and reporting utility, which enables clients to access real-time trade flow and financial activity data. Users can filter the reports based on country, message type, region, and other relevant parameters.
Software, Messaging, and Connectivity Solutions
SWIFT’s paramount goal is to be a secure, scalable, and reliable network for the seamless transmission of finance-related messages. It performs these functions via several messaging hubs, network connections, and software. Additionally, SWIFT offers several services and products that facilitate the sending and receipt of end-client transactional messages.

How Does a SWIFT Transfer Work? SWIFT transfers are a highly efficient means of sending money across borders. But the question is, how does it work? Let’s quickly consider the illustration below.Say you’re a business person in the UK sending money to a Berlin-based supplier to restock your inventory. You make the payment at your local HSBC and include the destination as your supplier’s DZ bank. To make the transfer, you’ll have to provide HSBC with DZ Bank’s SWIFT code and the supplier’s DZ bank account number. Additionally, you’ll have to pay a fee for the transfer. All the information you’ve provided enables HSBC to securely send the funds over SWIFT’s network to DZ bank. The latter is notified of the incoming payment and completes the transfer to your supplier’s account. SWIFT wire transfers usually take 2-5 days to reach their final destination. However, it may take longer if the distance between the sending and recipient country is significant. In such a situation, there will be delays due to the number of intermediary banks involved in the transfer. International SWIFT payments are seamless, provided the financial institutions involved have a pre-existing commercial relationship. Without this, there will be a need for intermediaries, which costs more and takes more time to complete.

What is a SWIFT Code?

SWIFT codes identify a bank’s name, city, and country. Essentially, they make SWIFT transactions possible. They are made up of 8 or 11 characters.

The first four characters designate the bank or financial institution
The next two characters designate the country code. For instance, UA is the country code for Ukraine. The following two characters designate the location or city
The last three characters are optional and designate the individual bank branch.

Benefits of SWIFT for Businesses and Financial Institutions Financial institutions and business owners can benefit from the SWIFT network in the following ways:

It facilitates seamless cross-border payments for goods and services
Via SWIFT, all parties involved can track transactions and understand the period and costs involved
SWIFT records are easily accessible and recognizable. They can also be generated and shared quickly
It helps financial institutions reduce the capital requirements needed to facilitate international payments

How to Track a SWIFT Bank Transfer The SWIFT international payment system has a wide coverage, spanning every continent. Consequently, it is fairly easy to track a bank transfer. The SWIFT Global Payment Innovation (GPI) introduced a feature in 2018 enabling banks within its network to track payment instructions in real time, giving them comprehensive visibility regarding payment activity. To track a SWIFT bank transfer, in short, you must contact your bank and provide them with the transaction details, including the recipient bank and SWIFT code. Challenges of SWIFTPayment systems also have their own share of setbacks. Fragmentation and various approaches to implement across different markets hamper settlements and real-time clearing value. Here are some challenges peculiar to the SWIFT network today:

Lengthy transaction duration
High costs, e.g., inquiry and transaction fees
Scalability
Automation of message creation

Narvi Payments

A Borderless Banking Solution

While business owners can benefit from SWIFT's network, the system does not compare to Narvi in terms of a comprehensive, business-oriented user experience. Narvi's open banking software allows business owners to create special business accounts and gain access to several features designed to optimize business operations.Some of these features include:Multi-user AccessAs a business owner, there's nothing more convenient than owning a business account with multiple access levels. This way, you can set up various account access settings for your business partners and employees to help optimize your financial operations. For instance, you can choose to grant them view-only access to download bank statements and check out banking information or transaction data while reserving the full-access settings for yourself and trusted individuals. Dedicated IBANUsing a Narvi business account gives you access to a dedicated IBAN. This way, you can leverage IBAN’s efficient system and have customers pay directly into your account via their banking app or payment system. SWIFT Global PaymentsNarvi integrates one of the world's foremost global payment systems, SWIFT. With a Narvi business banking account, you get direct access to SWIFT and enjoy faster payments. Intercompany Accounts Another unique feature that highlights just how optimized Narvi is for business owners is its new intercompany feature. Here, you can manage banking for multiple companies from a single dashboard. Additionally, you’ll be able to create individual IBAN numbers and grant group access to auditors, accountants, and employees. Ultimately, you can manage multiple companies from one dashboard. SEPA Instant (SWIFT Alternative for EU)Narvi serves all countries within the European Economic Area and supports transactions in Euro. As an alternative to SWIFT, SEPA Instant services are offered to EU countries for speedy transactions.Indeed, SWIFT is a multi-faceted global payment system. Its usefulness cuts across several industries in the world’s economy. Due to its efficiency and vast coverage, the SWIFT network continues to be a global leader for international payments and cross-border financial dealings of all kinds.Innovative payments are here to stay. SWIFT continues to remain a global leader in the industry. However, open banking platforms like us offer more versatility for business owners

Published January 26, 2023Author:

Neil Ambikar, Co-Founder and CFO of Narvi Payments.Read next:

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