Thanks to SWIFT, a freelance writer in Chicago can get paid by a client in London, an American retiring in Mexico can buy a house in San Miguel de Allende, and a multinational corporation can transfer money from headquarters to local operations. Individuals, businesses, banks, and governments rely on SWIFT to get things done. The focus has always been on speed and security. SWIFT is owned by its member banks and led by the National Bank of Belgium, the country where SWIFT is headquartered. The G-10 central banks (Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, United Kingdom, United States, Switzerland, and Sweden) along with the European Central Bank provide oversight. The involvement of so many nations means that if one is cut off from SWIFT, it will be difficult for its citizens to engage in international trade.
How SWIFT Works
At its heart, SWIFT in banking is a messaging system. When someone wants to send money overseas, they start the transaction at their own bank, which then notifies the recipient’s bank that the transaction is taking place. These messages are called FINs. After that, the money is transferred electronically, either directly or through another bank.The money is sent by wire transfer. Each participating bank has a business identifier code, also known as a BIC code or a SWIFT code. Each bank on the network has at least one, and customers need it to make a transaction over the network. Banks that are not part of SWIFT usually have a relationship with a larger bank that is a SWIFT member, known as a correspondent bank, so almost anyone who needs to send money to someone in another country can do so through their current bank—even if it has only one branch in a small town. SWIFT is a major part of the world economy. The network’s record for a single day of activity is 50.3 million FINs, sent on November 30, 2021. Traffic tends to be high at the end of every month as people look to pay invoices, settle accounts, and close the books. If any money has to cross borders to do this, SWIFT comes into play. To send funds via SWIFT, you must give the following information to your bank:
Recipient’s nameRecipient’s account numberRecipient’s bank routing information and SWIFT numberThe amount and currency to be used for the transferRecipient’s mailing address including city, region, country, and postal zip code
One of SWIFT’s functions in banking is to prevent money laundering. Tying banks around the globe to a central network makes it more difficult for folks to evade taxes or deposit ill-gotten gains.
Alternatives to SWIFT
Over the years, many competitors to SWIFT have emerged. Some, such as the financial messaging system of the Bank of Russia, are designed to evade sanctions and take power away from the central banks that oversee SWIFT. Others are designed to reduce the costs of transfers and simplify the process. Most nations have systems for transferring money within their borders that do not rely on SWIFT. Within the United States, money can be transferred by ACH or any of the other organizations that the Federal Reserve Bank regulates as designated financial market utilities. Customers can also use private money networks, such as Xoom or PayPal, to transfer money within and between some countries. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
