How SWIFT Works

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SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a global financial messaging system that allows banks and other financial institutions to exchange transaction information in real time. SWIFT does not move money directly, but rather serves as a "postal courier" that provides secure and standardized communication between participants.

Let's look at how SWIFT works, step by step:

1. What is SWIFT?​

• Main function: SWIFT provides secure messaging between banks for international payments.
• Global scale: The system connects more than 11,000 financial institutions in more than 200 countries.
• Standards: SWIFT uses universal standards to format messages, making them understandable to all participants.

2. How does the SWIFT transfer process work?​

Step 1: Initiate a transaction​

• A client (e.g. an individual or a company) contacts their bank with a request to transfer funds.
• The bank checks the recipient's details, such as:
  • Recipient's account number.
  • Name of the recipient bank.
  • SWIFT/BIC code of the recipient bank (unique bank identifier).
  • Transfer amount and currency.

Step 2: Create a SWIFT message​

• The sender's bank creates a SWIFT message that contains information about the transaction. This message does not transfer money, but only transmits instructions.
• Example of message structure:
  • Sender: Name, address, account number.
  • Recipient: Name, address, account number.
  • Payment details: amount, currency, purpose.

Step 3: Sending the message​

• The message is sent via the SWIFT network to the recipient's bank.
• SWIFT uses secure communication channels and encryption to protect data.

Step 4: Processing the transaction​

• The recipient bank receives the SWIFT message and checks it.
• If all the data is correct, the bank credits the funds to the recipient's account.

3. SWIFT and correspondent accounts​

In international transfers, correspondent accounts (Nostro/Vostro accounts) are often used, since not all banks have direct relationships with each other.

How does it work?​

1. If the sender's bank does not have a direct agreement with the recipient's bank, it may use a correspondent bank.
2. The correspondent bank acts as an intermediary, processing the transaction through its accounts.
3. This adds extra steps and fees, but ensures that the transaction goes through.

4. Advantages of SWIFT​

• Security: SWIFT uses modern encryption and authentication methods to protect data.
• Versatility: The system supports many currencies and transaction types.
• Speed: Most transactions are processed within 1-3 business days.
• Reliability: SWIFT is the de facto standard for international banking transactions.

5. Disadvantages of SWIFT​

• Commissions: Each participant in the chain (banks, correspondents) can charge a commission, which increases the cost of the transfer.
• Delays: Transactions may be delayed due to verification, holidays or time zones.
• Limited transparency: Clients do not always know the exact amount of fees or turnaround times before a transaction is completed.

6. SWIFT code (BIC)​

SWIFT code (or BIC — Bank Identifier Code) is a unique bank identifier in the SWIFT system. It consists of 8 or 11 characters:

• First 4 characters: bank code (e.g. COBA for Commerzbank).
• Next 2 characters: country code (e.g. DE for Germany).
• 2 more characters: location code (e.g. FF for Frankfurt).
• Last 3 characters (optional): bank branch code.

Example: COBADEFFXXX (Commerzbank, Germany, Frankfurt).

7. Alternatives to SWIFT​

Although SWIFT remains the dominant system, there are alternatives:

• SEPA (Single Euro Payments Area): For transfers within Europe in euros.
• Ripple: Blockchain platform for fast international payments.
• CIPS (China International Payment System): Chinese system for yuan settlements.

8. Conclusion​

SWIFT is a reliable and efficient system for international bank transfers. It provides secure interaction between banks around the world, although it may be associated with some limitations, such as fees and delays.

If you have a specific question about how SWIFT works or an example of use, write - I will try to help!

 

[Man]

How does the SWIFT system work?​

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a global financial messaging system between banks. It does not transfer money directly, but serves as a secure channel for transmitting payment instructions.

1. Basic principles of work​

(1) Participants of the system​

• Banks and financial institutions (more than 11,000 organizations in 200+ countries).
• Corporations and private clients (using SWIFT through their banks).

(2) How does the translation happen?​

1. The client gives an order
   • You go to the bank or use online banking to send a transfer.
   • Specify:
     • SWIFT code (BIC) of the recipient (e.g. DEUTDEFF for Deutsche Bank).
     • Account number (IBAN) or other identifier.
2. The sending bank generates a message
   • A SWIFT message is created (MT103 format for payments).
   • It includes:
     • Amount, currency, sender/recipient details.
     • Currency code (USD, EUR, etc.).
3. Transfer via SWIFT network
   • The message is encrypted and sent through secure SWIFT servers.
   • Money does not go through SWIFT - the system only transmits information.
4. The recipient bank credits the funds
   • If banks have correspondent accounts, the transfer is completed within 1–3 days.
   • If not, an intermediate bank is involved (for an additional commission).

2. Security and fees​

(1) Data protection​

• Encryption: All messages are encrypted according to ISO 20022.
• Access control: Each bank is authenticated via SWIFT PKI.

(2) How much does the translation cost?​

• From $20 to $100 (depending on banks and countries).
• Additional costs:
  • Intermediate bank commission (if required).
  • Currency conversion (if you send USD and the recipient wants EUR).

3. Limitations and Alternatives​

(1) SWIFT Problems​

• Not instant: Usually 1-5 business days.
• More expensive than SEPA (for the Eurozone) or cryptocurrencies.

(2) What to replace it with?​

• SEPA (for euros in the EU) - cheaper and faster.
• Cryptocurrencies (USDT, XRP) - bypass intermediaries.
• Wise (ex-TransferWise) - low fees for international transfers.

Example of SWIFT transfer​

1. You send $1,000 from the US to Germany via Chase.
2. Chase generates a SWIFT message for Deutsche Bank.
3. Deutsche Bank receives the instruction and credits the funds to the recipient's account.

Result: The money was gone in 2 days, commission - $50.

Conclusion​

SWIFT is a "mail" for banks, not a payment system. It is reliable, but slow and expensive. For private transfers, it is better to use Wise or cryptocurrencies if speed is critical.

Need details on a specific transfer? Ask!