Which new technologies are challenging the traditional SWIFT system?

Some of the disadvantages of the SWIFT system have highlighted new technologies that fill in these gaps. Banking trends like Electronic Money technology and blockchain-based systems can be an attractive alternative for transferring money internationally. The main uses of SWIFT are to transfer funds between bank accounts and to send banking messages.

Blockchain Technology:

Blockchain technology is decentralized therefore there is no third party involved in a transfer. This can greatly reduce fees that are usually added to international wire transfers.

It also offers a much faster system for electronic funds transferring which is beneficial for banks and customers. Faster transactions save the bank time and resources while the customer can send and receive funds faster.

Banks have already started testing blockchain-based systems and investing in companies that can implement the technology into their systems. With this innovative revamp, many banks will likely enhance the user interface improving customer service.

Electronic Money Technology:

EMIs, or Electronic Money Institutions, have been emerging and offering upgraded financial services. EMI’s like PayPal offer fast and easy transactions and pose a challenge to traditional SWIFT transfer methods.

Sending funds internationally is generally much faster via EMI as well as more cost-effective.  The rising popularity of electronic money Fintech companies will continue to challenge the traditional banking environment by offering a better banking experience.

SWIFT transfer meaning

SWIFT is the abbreviation of the Society for Worldwide Interbank Financial Telecommunications, which was founded in 1973, as a messaging network used by member banks and other financial institutions for transferring funds. There are currently more than  13,000 member institutions.

SWIFT is a messaging protocol for passing instructions between member banks/institutions. This network allows bank customers to electronically transfer money directly from their own account into a recipient’s account.

SWIFT is not directly involved in the fund movement itself. It is a bank-to-bank messaging system that institutions use to communicate payment instructions between each other. It transmits instructions over a secure end-to-end network that are then followed by related money movements.

The SWIFT money transfer system

The SWIFT network creates a secure environment for receiving messages about financial transactions. It does not hold accounts, or clear or settle financial transactions. The most important element of SWIFT money transfer is that the two bank accounts are specifically identified with the bank/branch SWIFT code, plus the related specific account numbers. Taken together with the amount, a timestamp and a security key, this identifies the transaction uniquely, which allows for full tracking and validation along the whole path.

The messaging takes place via the shared SWIFT network, which guarantees end-to-end security. The actual transfer of money occurs via individual wire transfers, or through established channels, such as inter-bank clearing systems (in the USA, ACH for smaller payments and CHIPS for larger payments. In the UK, the CHAPS system is equivalent to CHIPS, operating in Sterling).

SWIFT for Electronic Funds Transfers

A person/company (the payer) wishing to transfer will instruct his bank to move an amount into a designated target account (the payee). The sending bank will then debit the amount of the transaction from the payer’s account, and send an electronic SWIFT message to the receiving bank to credit the payee’s account. The actual process is all handled automatically by the two banks’ computer systems and there is no manual intervention necessary.

Depending on the actual connection (within the same bank, intra-bank inside the same country, foreign bank etc.) the actual movement of the funds can happen immediately, or can take a number of days as it moves through the chain between the two bank branches. 

Bank SWIFT transfer charges

There are no hard-and-fast rules for how a bank charges for transactions through SWIFT. The movement of funds from sending bank to receiving bank can have different components, depending largely on whether the two banks are branches of the same institution, or are in the same country and whether they have an established mechanism for transfers (such as CHIPS/CHAPS) or have to wire the transfer through third-party institutions that may levy some charge. 

There are also some elements that the customer can choose from that affect the charges. Basically, the person initiating the transfer can accept all charges (added to the amount debited), can elect to share all charges with the recipient (half added at his end, half deducted from the credit at the other end), or nominate “beneficiary” which means the total charge is deducted from the receiver’s credit.

Generally, the sending bank will charge its customer a fee based on a flat amount plus some percentage of the total involved, and the receiving bank will add any charges that were levied en-route, plus its own fee. As well, there may be considerable charges for conversions when sending and receiving accounts are in different currencies.

SWIFT money transfer fees calculator

The charge depends on many components. The sending banks should be able to quote a total for their own fees at the time of accepting the SWIFT instructions, but the final fee deducted at the receiver’s end cannot be calculated until the transfer has completed. Transfers between two domestic banks are usually cheaper (and faster), since they can be completed through one central payment system, such as that provided by the Federal Reserve for US banks via CHIPS/ACH. 

Most banks in the US and Europe quote their standard fees on their websites or as part of the transaction creation process. A typical range of charges for SWIFT transfer inside the USA is $25-30 at the sending end, and $15-20 for the incoming side. Generally, in Europe, the sending bank fees are lower (€5–10) and €10-40 on the receiving end.

International wire transfer fees

International bank wire transfers involve more parties, including the sending bank, maybe one or more foreign banks in one or more intermediate countries plus the target bank. This can increase the total cost based on the charges levied by the intermediate banks and clearing centers.

For transfers between countries, typical charges would be $30-45 at the sending end, and $15-20 for the receiving side. The final charge at the receiving end depends also on the number of intermediary steps taken, since each bank along the route will levy its own charge.

There is also a charge if the amount is sent in one currency but must then be converted at the sending end into the currency of the receiver. As well, the conversion rate is subject to many different variables, so the amount finally credited may be substantially different from the initial amount.

SWIFT transfer time frame

Again, the degree of connection between the two banks (sender and receiver) will have an influence on the time taken between the initial instruction at the sender’s end and the crediting of the money at the receiver’s end. The best case is a transfer between accounts within the same bank in the same country. Normally, the credit should appear by the end-of-day or at most within 24 hours. If different banks are involved within the same country, it should normally take only 24-48 hours maximum. In cases of cross-border movement, it may take between 1 and 5 days before the funds are credited. In some countries, a holding period may be enforced by regulations (for example, in India, the credit takes 90 days).

The time taken is not a function controlled by SWIFT, which is strictly speaking an instantaneous messaging system irrespective of the degree of separation between the two accounts. The time taken is purely dependent on the transfer mechanism.

SWIFT transfer tracking

Until recently, it has only been possible to track transfers in the first leg of the transaction (the sending bank). Now, SWIFT has introduced a new function, known as the SWIFT global payments initiative (gpi), with a facility called Tracker that enables banks to provide end-to-end payment tracking to their customers. This provides step-by-step visibility of the status of a payment transaction from the moment it is sent right up to when it is confirmed. 

Bank customers can request a trace on a transaction using the specific SWIFT code supplied by the sending bank. Some banks are already offering tracking as an online service to their customers. Banks have to pay SWIFT for traces, and may pass this on in full to the requesting customer.

FAQ

How does a SWIFT transfer work?

SWIFT acts as a messenger system, instructing the movement of funds between two accounts. After the sender initializes the transaction either through an on-line terminal, or using over-the-counter banking etc., the instruction is passed through the secure SWIFT network, and uniquely identifies the whole transaction through a combination of bank/account IDs at both ends, plus amount, date/time stamp and an encrypted code. Once the message has been received and acknowledged, the funds will be transferred either via a wire transfer, or through some central clearing bank.

What is the difference between wire transfer and SWIFT transfer?

It is possible for a third party to wire funds directly into an account, provided they know the target account number and the specific wire transfer routing number. This method is restricted to internal movement inside the USA. For incoming international wires, the appropriate SWIFT code is necessary. SWIFT offers a higher level of security, and provides facilities for tracing and follow-up that plain wire transfers do not allow.

How long does a SWIFT transfer take?

For transfers within the same bank, the transaction can be completed within a few seconds, and rarely takes more than 24 hours. For transactions across different banks in the same country, the same timeframe usually applies, as long as both banks are members of the SWIFT co-operative. Transfers between two countries can take 1 to 5 working days, and maybe longer if there is currency conversion involved. As well, some countries have built-in delays (up to 90 days in India) before the funds are credited, even though the sender’s account has been debited at the very beginning.

Is SWIFT transfer safe?

SWIFT itself is not involved in the movement of funds. It is purely a messaging system, instructing member banks to move funds between accounts. Generally speaking, it is the safest channel for initiating money transfers. The messaging is encrypted and moves end-to-end on a private network. The actual movement of the funds takes place with the bank’s own transfer mechanism, which can be individual wire transfer, central clearing bank debit/credit offset (which is common in the USA, UK and Europe) and so on. 

Do all banks use SWIFT?

No. Currently, around 13,000 banks worldwide use SWIFT messaging. This represents a very large proportion of world banks, but there is no mechanism to force banks to join. Bank customers should make inquiries at the time of starting a transaction. The sending bank should be able to identify whether or not the receiving bank is a member of SWIFT.

Why do banks use SWIFT?

Before the SWIFT network was put in place, banks and financial institutions relied on a system called TELEX to make money transfers. This was slower, subject to breakdowns and vulnerability, and required a much higher level of hands-on effort. 

SWIFT provides a fully automated, completely secure and very fast messaging channel for handling money transfers. It needs no human intervention at either end. It is a relatively cheap service and removes the need for individual banks to create, maintain and secure their own messaging system. As more and more banks join, the advantages are growing.

What contributes to SWIFT’s success is its completeness, because the message contains all the relevant information needed to move the money, plus traceability and universality, making it easy for its users to understand the transactions. 

Is SWIFT secure?

The messaging system itself is focused on the principles of transparency, traceability and consistency. It is highly secured, operating only between member banks on dedicated networks. For individual bank customers, they are isolated from any vulnerabilities that there may be in SWIFT because it is a service provided to the banks, not directly to bank customers.

How do I send a SWIFT transfer?

There are many channels for invoking a SWIFT transaction. On-line banking, over-the-counter instructions, B2B, PayPal and many more. In many cases, the fact that it is generating a SWIFT transfer is not apparent. SWIFT is a built-in function within the bank’s customer interface, so that it is invoked automatically when that is the appropriate action for the required transaction.

How to trace a SWIFT payment online

SWIFT has recently introduced an application, known as the SWIFT Tracker (part of SWIFT gpi), that enables banks to provide end-to-end transaction tracking for their customers. Given the unique transaction ID, it is possible to track it through every step of the way. Some banks offer this as an online service.

Can receiver track SWIFT transfer by reference number?

Individual transactions can be tracked by a bank on behalf of their customer. SWIFT gpi can track transactions based on the unique code and can be made available by banks to their own customers. The service was only becoming fully functional at the end of 2020. Up to now, it has been targeted at corporate customers and banks. For individuals, it is necessary to approach either the sending bank or the receiving bank for tracking.