SWIFT payments are not actually payments, but wire transfer information. SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a network that enables a standardized, secure method (known as SWIFT codes) for sending and receiving international wire transfer instructions.
SWIFT is the network of 11,000 member financial institutions that enables fast, secure international wire transfers. The network doesn’t transfer any physical funds, but rather provides a standard way to send payment orders. In 2020, around 35 million orders per day were sent via the SWIFT network.
SWIFT wire transfers can take up to two business days to process, as they are subject to banks’ cut-off times, and have to be settled at both domestic and foreign banks, often running through intermediary correspondent banks. International wires are monitored closely by the Office of Foreign Assets Control, a branch of the US Treasury, for anti-money laundering compliance.
What does SWIFT look like in action?
Let’s say you want to send an international wire transfer via SWIFT to your foreign business partner in Tokyo. You can initiate the transaction in one of several ways: by going into a branch, calling, or going online and using your bank’s digital portal. Let’s call your bank Modern Bank and call the bank you’re sending money to Japan Bank. To send payment, you’ll need to provide:
- The recipient’s name and address
- The name and address of the bank receiving the money, in this case Japan Bank
- Japan Bank’s SWIFT code, also called a SWIFT ID or Bank Identifier Code, that helps route the funds to the right branch of the right bank in the right country
- The recipient’s International Bank Account Number (IBAN)
- The payment instructions (e.g., $1M USD to be received in JPY)
Modern Bank will use SWIFT to relay the payment information and instructions to Japan Bank. If Modern Bank and Japan Bank do not have a direct relationship, the instructions will also route through an intermediary bank. Once Japan Bank receives the information, it will deposit money from its reserve funds into the correct account. Later, the two institutions will settle the payment, which means they’ll adjust the account balances to reflect the transfer.
History of SWIFT
SWIFT was formed in 1973 to help standardize international funds transfers and prevent security risks that traditional telegraphic transfers posed. Its inaugural year, it was initially supported by 239 banks in 15 countries. By the time the first message was sent in 1977, that had expanded to 518 banks in 22 countries.
Subscribe to Journal updates
Discover product features and get primers on the payments industry.