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SWIFT Payments - what is it and how does it work?

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What Is SWIFT and How Does It Work?

What is SWIFT?

SWIFT is a member-owned cooperative through which the world’s financial institutions send and receive information about financial transactions in a secure, standardized environment. SWIFT also sells software and services to help financial institutions meet compliance standards, manage their payments infrastructure, and connect to other members of the global banking community.

As of December 2019, SWIFT had 11,265 active participants from 200 countries and territories.

SWIFT processes literally billions of messages every year, currently, servicing its member banks as well as other financial institutions globally on behalf of their clients. This messaging system facilitating cross-border payments is collectively known as the SWIFT network or simply the Swift system.

SWIFT has become an important part of the infrastructure for global finance, but it is not a financial institution. SWIFT does not hold or transfer assets, but its usefulness lies in its ability to facilitate secure and efficient communication between member institutions.

How does the SWIFT system work?

The SWIFT system works by assigning unique set of numbers or codes to each financial institution all over the world. This SWIFT code is a combination of of 8 to 11 characters to an individual’s bank account. 

For instance, if you want to pay an employee living in another continent, the unique SWIFT code enables you to make payment easily. Once the employee’s unique code is submitted, a message is sent to the employee’s bank and the money gets disbursed.

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What is SWIFT code?

A SWIFT code is an 8 to 11 character code that identifies an individual’s country, and city’s bank branch. It is also called Business Identifier Codes (BIC). The SWIFT code is in the format of AAAA BB CC 123.

AAAA - This is the bank’s code. It is usually represented by four letters of the bank’s name.

BB - This is the country code. It is two letters representing the country.

CC - This is the location code and it is represents where the bank is located.

123 - These are three digits that is unique to the bank’s branch.

How SWIFT payment works → Sending money with SWIFT

Assuming a customer of Bank of America in New York wants to send money to their friend who banks with Bank of the Philippine Islands (BPI) in the Philippines, they can go into their local Bank of America branch with their friend's account number and the unique SWIFT code for BPI's branch.

Bank of America will then send a payment transfer SWIFT message to the correct BPI branch over the secure SWIFT network. Upon receiving the SWIFT message about an incoming payment, BPI will clear and credit the money to the Philippines-based friend's account.

Although SWIFT is very powerful, it should be noted that it is simply a messaging system. It is not responsible for holding funds or securities, or managing client accounts.

Who Uses SWIFT

SWIFT was designed to streamline communication about this reasury and correspondent transactions. However, the message format design was robust enough to allow for huge scalability. As a result, SWIFT gradually expanded its services to include:

  • Banks
  • Securities dealers
  • Clearinghouses
  • Trading houses and brokerage institutes
  • Asset management companies
  • Exchanges
  • Depositories
  • Treasury service providers and market participants
  • Corporate business houses
  • Businesses or Individuals making international money transfers or wires
  • Money and foreign exchange brokers

What are the benefits of SWIFT

The benefits of SWIFT payments are;

  • Ease in tracking payments
  • Ensuring seamless communication between countries
  • Transparency in transactions

SWIFT code vs IBAN

SWIFT and IBAN ( international bank account number) are two standardized means of identifying bank accounts. However, they differ in the outcome of the search result.

While SWIFT codes are used to identify a specific bank, IBAN codes are used to identify specific bank accounts in the bank.

Simplify international payments with Skuad

SWIFT payments are part and parcel of remote work management and payroll, or in the case of independent contractors, invoicing. Skuad’s global employment and payroll platform fully supports and integrates all the requirements for the SWIFT banking system to work in your favor, regardless if you’re working with full-time employees or freelancers.

Better yet, as your partner for global expansion, Skuad manages concerns far more complex and potentially costly than that, including compliance to local employment legislation. Attempting to manage everything in-house will only slow down your growth. Choose a reliable global payment provider instead — Skuad will manage HR and payroll globally and at the same time guarantee compliance with all relevant local labor laws practically anywhere in the world. Skuad handles all of these problems and more so you can focus on growing your business globally.

Start paying globally with Skuad today. Book a demo now.


Does SWIFT actually transfer money?

No, SWIFT does not actually transfer money. SWIFT is a messaging network that assigns each financial institution a unique code that identifies the bank’s name and the branch in any country.

How long do SWIFT transfers take?

Usually, beneficiaries receive international payments via SWIFT transfers within five minutes. Sometimes, it can take up to 30 minutes.

Who controls SWIFT banking?

SWIFT is a cooperative under the Belgian law but controlled and owned by its approximately 2,400 shareholders - financial institutions in the world.

About the author

Nathan Williams is a Global Payroll Specialist and Finance Consultant. With a background in banking and finance, he is passionate about modern tech practices in payroll management and using global payroll platforms for global payments.

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