Ever wonder how money and financial transactions make their way across borders and end up at the right bank or financial institution? You have the Society for Worldwide Interbank Financial Telecommunication network for that.
Never heard of it? You probably know it by its acronym SWIFT (typically written "Swift"), the massive financial artery that connects banks, financial institutions, and governments worldwide.
So, what is Swift, and how does it work?
What Is Swift?
Swift is the main secure transfer-order method banks use to request payments from other institutions. Formed in 1973 and based in Belgium, Swift is the primary mechanism for financing international trade, making cross-border payments, and transferring money internationally.
In 2021, around 42 million transactions were sent via Swift each day, up from the 32 million sent each day in 2015. The Swift network accounts for trillions of dollars in financial transactions and is a vital link in world trade.
How Does Swift Work?
Although Swift is responsible for trillions of dollars worth of financial transactions each year, Swift isn't actually responsible for the transfer of funds. Instead, Swift is more like a messaging and routing service that sends and facilitates payment orders.
Within the Swift network, each bank is assigned a unique code containing either eight or eleven characters known as a bank identifier code (BIC) (also known as a Swift code or Swift ID). To use Swift, you must know the BIC for the bank you want to send money to.
For example, say you want to send money from your Capital One account to your friend in Amsterdam, who banks with ING Bank NV. To send money to them, you would need your friend's name, account number, and the ING Bank NV's unique Swift code for the specific Amsterdam branch.
Once you provide that information, Captial One sends a payment request to ING Bank NV via the Swift network. Once ING Bank NV receives the Swift payment request, it can begin the process of clearing funds to or from the accounts in question.
Remember, Swift isn't responsible for the accounts, the actual funds, or the transition of money. It sends and receives the messages to put those payments in order.
How Fast Is a Swift Payment?
A standard Swift payment can take anywhere from one to four days. The speed of transfer depends on several factors, including anti-fraud and anti-money laundering checks. Furthermore, the speed of a transaction can also slow if the banks you're attempting to send money through do not have a direct relationship. In that case, your Swift transaction will pass through an intermediary bank, slowing the process and adding to the transaction cost.
If You're Sending Money Internationally, You're Using Swift
If you've ever sent money internationally, it's highly likely you've used Swift, whether you knew it or not. However, in the modern era, Swift is not the only way to send money across borders, the rise of cryptocurrency making it easier than ever to send money anywhere in the world with relative ease.