Are you located in the United States but need to pay a business in Germany? Spoiler alert: Venmo isn’t really an option. But that doesn’t mean the money can’t quickly and securely make its way from point A to point B.
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) network allows businesses to transfer money from their bank to a recipient’s account. Since the network’s inception in the 70s, SWIFT payments are now the largest facilitator of international payments on the globe.
Let’s break down how SWIFT payments work.
What Is the SWIFT System?
SWIFT allows companies to compliantly pay their global workforce or make other international payments. It’s a member-owned, global cooperative that acts as a communications liaison between banks.
SWIFT is an international messaging system that provides standardized, secure, and traceable messages between financial institutions. Meaning: they don’t directly participate in financial transactions. Instead, they provide a secure network to help facilitate and foster communication about these transactions.
So when you want to make a payment, you’ll give your recipient’s SWIFT code and account number to your bank. This will allow your bank to find your recipient, alert them of the incoming payment and send the money.
Who Uses SWIFT?
When SWIFT started, it was only open to banks. Now, any financial institution across the globe can join the SWIFT network. Essentially, any financial institution that needs to make fast, secure payments can use SWIFT to do it.
Types of financial institutions that might use SWIFT include:
- Brokerages
- Banks
- Trading houses
- Exchange brokers
- Depositories
According to the SWIFT website, more than 11,000 financial institutions across the globe use the network. So if you’re looking to send a payment to an overseas employee, chances are you’ll do it with SWIFT.
What Are the Benefits of SWIFT?
SWIFT payments make global payments easier than ever. So, for those conducting business overseas or hiring global employees, this payment system allows you to safely and quickly pay your business partners or employees.
A few main benefits of the SWIFT system:
- Accountability. SWIFT makes it easy to track your payment from bank to bank so both parties know exactly when the payment was sent and received.
- Accessibility. Global enterprise often comes with communication barriers. But SWIFT breaks down these barriers to make communication between countries as seamless as possible.
- Transparency. SWIFT provides details about exactly how much you’re going to pay for your transaction.
- Popularity. SWIFT makes payments across the globe in almost 150 different currencies. This means that anyone you need to pay is most likely signed up for the network, which makes payments easier.
How Do SWIFT Payments Work?
Say you’re a company who banks with the Bank of America. You need to send a payment to your manufacturer in Japan, who banks with the Mitsubishi UFJ Bank. To coordinate this transaction, you need to:
- Contact your bank with your manufacturer’s SWIFT Code and account number
- Pay a small fee
Your bank then securely sends the payment to your manufacturer’s bank in Japan. Usually, this takes a few business days.
What Is a SWIFT Code?
SWIFT members receive a SWIFT code—also called a Bank Identifier Code or a Business Identifier Code—to conduct their transactions. In order to jumpstart a transaction between two banks, you’ll need your recipient’s account number and their SWIFT code.
These codes are broken down like this:
- First four digits indicate the bank the code belongs to.
- Next two characters indicate the country the payer lives in.
- Next two characters indicate the city the payer lives inLast three characters sometimes aren’t present. If they are, they indicate the specific bank branch the code belongs to.
For example, the eight-digit code for a Chase Bank in the United States of America (not including the specific branch) is CHASUS33. The CHAS indicates Chase Bank, and the US33 indicates New York City.
So, if someone abroad were paying you, they would give their bank the CHASUS33 code, followed by your account number.
SWIFT Code vs. IBAN
The main difference between SWIFT and IBAN codes is the desired result. You’d use each code to find the following:
- SWIFT. A specific bank.
- IBAN. A specific account in the bank.
IBAN codes are generally significantly longer than SWIFT codes since they include more of the entire account number rather than just short codes to identify one particular bank or branch.
Additional SWIFT Services
SWIFT’s primary use is financial messaging. However, the company also provides a handful of other services.
Compliance
Know Your Customer (KYC) and anti-money laundering laws can be confusing for businesses. SWIFT’s services help businesses stay compliant with all financial payment laws in countries they’re paying or receiving money from.
Connectivity
The main SWIFT service is messaging, so it makes sense that they offer a comprehensive messaging suite to make connectivity simple. Businesses and banks have multiple avenues to communicate with each other and facilitate payments.
Global Payments
When all you need to make a payment is a code and an account number, cross-country payments become easier than ever. It’s easy for businesses to pay foreign companies or employees using the SWIFT network.
Applications
SWIFT now provides a few other applications like real-time instruction matching and banking analytics.
SWIFT and International Employees
The SWIFT global banking system is a great option for employers hiring remote workers from across the globe. It makes paying remote employees safe, secure, and—well—swift.
When two banks on different continents have barriers in communication or sending payments, SWIFT helps circumvent these issues and allows the payments to clear. SWIFT is also useful when your company doesn’t have a permanent establishment in a country and, therefore can’t use local banks there.
FAQs
Let’s answer some common questions about the SWIFT payment system.
Are SWIFT Payments Secure?
One of the reasons why SWIFT has become the gold standard for international payments is its security. SWIFT ensures security of its transactions through its Customer Security Controls Framework.
Are There Alternatives to SWIFT?
There are alternatives to SWIFT. Companies like Revolut, Wise, and CurrencyCloud provide similar services.
What Are the Costs Involved With SWIFT?
SWIFT members must make several payments while using the network. These include:
- A one-time joining fee
- Membership dues
- A small percentage fee for each payment sent
Are There Downsides to SWIFT?
SWIFT payments are relatively expensive. And when sending and receiving money, it’s frustrating to have the payment come up short after fees. So, while SWIFT provides unprecedented transparency and security for international wire transfers, the fees may be a deterrent.
How Does SWIFT Make Money?
SWIFT is a member-owned organization. It makes money by charging a joining fee that members must pay and taking percentages of each transaction. SWIFT has also launched other services since its inception, through which it also earns income.
Make Payments A Breeze
There are many benefits to hiring and conducting business with people all over the globe. But payments are sometimes difficult to navigate. An international payroll outsourcing partner like Velocity Global helps you pay employees across the globe in a safe, secure way.
