What Is SWIFT? How the SWIFT Banking System Works

If you import products or components from around the world, you need a reliable way to send payments internationally. You need a system with a global reach, standardized message formats, and a strong security infrastructure to help reduce errors and miscommunication between financial institutions and prevent fraud. 

This is where the SWIFT comes in. It’s a global messaging network that banks use to coordinate and process cross-border payments. Here’s what you need to know about SWIFT and how you might use it in your business.

What is SWIFT?

SWIFT, the Society for Worldwide Interbank Financial Telecommunication, is a global cooperative that provides the standardized, secure messaging network financial institutions use to send payment instructions and other financial transactions across borders. More than 11,000 banks, financial institutions, investment companies, and corporations connect to the SWIFT system. Together, they send about 53 million transaction messages each day. The value of messages sent over SWIFT totals roughly the equivalent of the world’s gross domestic product every three days.

Banks founded SWIFT in 1973 to replace Telex, the slow and error-prone system then used to communicate international payment instructions. After establishing standardized message formats and security rules, SWIFT began operating in 1977. It soon became the global standard for financial messaging across borders, expanding into areas such as securities and trade finance. 

SWIFT is organized as a cooperative owned by a subset of its financial-institution members, not by all 11,000 institutions connected to the SWIFT network. It is overseen by the central banks of major economies, including the National Bank of Belgium, the US Federal Reserve, and the European Central Bank.

Although large corporations may connect to SWIFT directly, most small and midsize businesses—including ecommerce companies—use it indirectly through their bank or payment provider when sending funds internationally.

SWIFT’s growth has made international banking more efficient. What once took weeks now takes days, sometimes hours. SWIFT protects transactions through multiple layers of security, including message encryption, strict authentication protocols to verify each financial institution’s identity, and continuous monitoring for suspicious activity. And standardized formats have reduced manual work and errors in cross-border payments.

For businesses today, these improvements translate to fewer payment delays, clearer communication with international suppliers, and a more reliable process for managing global cash flow.

How does a SWIFT transaction work?

• SWIFT network messaging
• SWIFT codes
• SWIFT payment flow

To understand how SWIFT works, it’s helpful to look at what the network actually does during SWIFT transactions.

SWIFT network messaging

The SWIFT network sends payment instructions, not money. Financial institutions use the SWIFT messaging system to exchange standardized, secure messages that tell other financial institutions how to move funds between accounts. 

The transfer itself happens through the global banking system, while SWIFT ensures the information is transmitted accurately, consistently, and safely. Without a standardized messaging system like SWIFT, banks would need to rely on one-off formats or bilateral agreements, leading to higher error rates and slower processing.

SWIFT codes

SWIFT codes, also known as business identifier codes or bank identifier codes (BICs), are eight-character identifiers that specify the bank, country, and a location code within that country. It is often associated with a city or main office. The correct code is essential when sending money internationally to ensure it reaches the correct destination. Some institutions use an 11-character version when a specific branch code is required, but most payments only require the standard 8-character format. 

A BIC has the following structure: AAAA BB CC DDD

• AAAA = bank code

• BB = country code

• CC = location code

• DDD = branch code (optional; used only in 11-character BICs)

Examples include:

• CHASUS33 (JPMorgan Chase)

• WFBIUS6S (Wells Fargo) in the US

• DEUTDEFF (Deutsche Bank) in Germany

• HSBCHKHH (Hongkong and Shanghai Banking Corporation) in Hong Kong

SWIFT payment flow

When a business sends money overseas, its bank creates a SWIFT message with the payment amount, currency, and the recipient’s bank and account information. It may also include an international bank account number depending on the country. That message moves through the SWIFT network to the receiving bank—or, if the two institutions lack a direct relationship, through intermediary banks that help complete the transfer. 

These intermediary banks act as connectors between institutions that do not have a direct relationship, enabling funds to move across regions and banking systems. For merchants, the experience may feel similar to sending a domestic wire. Behind the scenes, the message passes through more institutions and screening checks to reach its final destination.

For example, let’s say an electronics distribution business needs to pay $50,000 to a supplier in Singapore. Its bank is Chase, and the supplier’s bank is Singapore’s largest, DBS. The company enters the supplier’s name, bank account number, bank name, and the SWIFT code for DBS Bank (DBSSSGSG) into its online banking system. Its bank generates a SWIFT message with these details, which may pass through one or more intermediary banks before reaching DBS. Once DBS receives the message, it deposits the $50,000 into the supplier’s account. The electronics company may pay a fee to initiate the transfer, and DBS may charge a receiving fee.

Challenges of using SWIFT

While SWIFT remains the dominant messaging standard for bank‑to‑bank cross‑border transfers, businesses today may also use other international payment services depending on cost, speed, and geography. Understanding SWIFT’s limitations can help merchants decide when it’s the right tool for a particular transfer.

Unclear costs

The cost of using SWIFT is not a single, fixed fee but a combination of charges levied by the banks involved in SWIFT system transactions. The sending bank usually charges a flat fee for initiating the transfer, typically $15 to $50 per transaction in the US, and the receiving bank may also add a charge. In addition, the transfer may pass through one or more intermediary financial institutions, each of which may deduct a fee. If the transaction requires currency exchange, banks typically add a markup of a few percentage points. 

These layered charges can make the final amount unpredictable, and for small businesses making occasional international payments, the costs can be substantial. 

Slow settlement times

SWIFT transfers typically take one to five business days because they rely on correspondent banking relationships—meaning funds may pass through several institutions before reaching the destination bank. Each institution in that chain must receive, validate, and forward the payment, adding processing time at each step. Time-zone differences, weekend and holiday schedules, and currency-specific processing windows can introduce additional delays. 

Even when everything functions correctly, the multistep process means SWIFT transfers are inherently slower than domestic systems. For ecommerce businesses, this can complicate inventory planning, since many overseas suppliers do not ship goods until the payment has fully settled. 

Inconsistent processing times

Even beyond the generally slower settlement times of SWIFT transfers, processing speeds vary across financial institutions. Each institution sets its own processing windows, review procedures, and cut-off times, which means two payments sent on the same day can arrive on very different schedules. The number of intermediary banks involved adds further unpredictability. 

Understanding cut-off times is particularly important. If you submit a transfer just after your bank’s daily cut-off, your payment won’t begin processing until the next business day—adding more time to the total settlement time.

This lack of standardization makes it difficult for small businesses to know exactly when a payment will reach an international supplier. For example, one bank may process outgoing transfers every hour, while another processes them only a few times per day, creating timing differences.

Alternatives to SWIFT

Businesses looking to control costs and get more transparency in global transfers might look for alternatives to the traditional SWIFT process. Newer services have emerged to challenge SWIFT by offering quicker messaging and transaction processing, and lower costs. SWIFT itself launched a service called SWIFT Go, for low-value payments, offering greater speed, as well as competitive and predictable fees.

Global ACH, or International ACH Transfer, can be used to move money between US and foreign bank accounts, in conjunction with similar transfer platforms, such as SEPA (Single Euro Payment Area) in Europe. It tends to be cheaper than SWIFT, with all fees present upfront, but it’s also slower. 

Other nations may promote alternatives to the SWIFT system. China’s CIPS (Cross-Border Interbank Payment System), for example, has relatively low fees and faster processing for yuan transactions. It offers messaging capabilities that may make it an alternative to SWIFT. Most CIPS payments still rely on SWIFT, according to the Federal Reserve.

International card networks such as Visa and Mastercard have also become more popular for businesses that need to process international transactions. The Visa B2B Connect and Mastercard Move services can complement the SWIFT messaging system.