SWIFT meaning: What is SWIFT in banking?
If you’ve done an international bank transfer, there’s quite a high chance that you’ve come across the term SWIFT. It is a banking term commonly used by major global banks for international money transfers. Though thousands of people send money overseas each day, some remain unaware of what the SWIFT meaning is. Here’s a detailed breakdown and information on this banking term to give you an idea of what the SWIFT meaning is.
What is SWIFT?
When sending funds overseas through a bank, you might automatically assume that your money is safely processed through their system. But do you understand what keeps every transaction secure? Let’s look into this deeper by understanding what the SWIFT meaning is and how the system works.
First of all, let’s answer the very question most of you might have in mind – what is SWIFT?
SWIFT is an acronym that stands for the Society for Worldwide Interbank Financial Telecommunication. Founded in 1973 in Brussels, Belgium, SWIFT is a cooperative that provides safe, secure and standardised global financial transactions amongst its members.
SWIFT operates a comprehensive messaging system used by member banks and financial institutions worldwide to quickly and safely deliver financial messages and information (e.g. securities transactions, funds transfer instructions, credit letters, etc.).
Before SWIFT, financial institutions and banks used TELEX to deliver financial messages. However, the process was slow and inefficient, so cross-border payments took a much longer time. With the development of SWIFT, the Society had processed about half of the world’s international funds transfers in 212 countries back in 2018.
How does SWIFT work?
When transferring money overseas, the money is not directly transferred from the sending bank to the receiving bank. In reality, it’s much more complicated than that. That’s why international wire transfer usually takes a bit of time to process.
Sometimes, the transaction needs to be processed through different countries before it reaches your beneficiary’s bank account. In short, there could be multiple intermediary banks in various countries involved in the process.
Thanks to SWIFT, the money isn’t necessarily passed on from one bank to another, making money transfer secure. Instead, SWIFT sends transaction orders between banks and financial institutions using SWIFT codes. This was made easier as SWIFT has standardised the Bank Identifier Code (BIC) and International Bank Account Number (IBAN) formats. Now, the SWIFT system can quickly and securely identify every payment sent overseas.
SWIFT assigns every bank and financial institution a unique code — either a SWIFT code, BIC code or ISO-9362. The code consists of the following:
- Country code
- Financial institution code
- City code
- Branch code (optional)
Take note that the SWIFT code can only identify banks, whilst the IBAN identifies both the bank and the recipient’s specific bank account. That’s why you wouldn’t need to worry about your financial data getting lost somewhere along the process.
Sending money through SWIFT
It’s easier to process the payment if the sending and receiving banks have an established relationship with one another. To give you an idea, here’s an example:
- A sends £100 to B
- A’s bank will send a SWIFT message to B’s bank
- A’s bank will deduct £100 from his account and credit it to B’s bank
- B’s bank will credit the £100 to his account
On the other hand, the process is not as straightforward when the banks don’t have an established relationship. It’s because both banks would need to find an intermediary bank they both have an established relationship with. Here’s an example:
- A’s bank sends £100 to B but their banks don’t have an established relationship
- A’s bank deducts £100 from his account
- A’s bank will ask intermediary bank C to credit the £100 to B’s bank
- Bank C charges a fee for acting as the intermediary bank (e.g. £2) and deducts it from the £100
- Bank C will only credit £98 to B’s commercial bank account
- B’s bank will deposit the £98 into his personal account
If both the sending and receiving banks cannot find one intermediary bank they both have an established relationship with, multiple intermediary banks will be involved. Thus, more and more fees will be charged, and the processing time takes even longer.
Alternative to SWIFT
If you wish to send money with better value, it’s best to send money through a money transfer service like Kabayan Remit. With Kabayan Remit, you can send money from the UK to the Philippines.
Here’s why sending money with Kabayan Remit is better than banks:
- Higher exchange rates and lower fees. We don’t charge hefty fees so you can get the most value out of every transaction.
- No hidden fees. You’ll know exactly how much you need to pay. Check it out on our calculator tool!
- Shorter processing time. The funds can reach your beneficiary within an hour.
- Variety of delivery methods. You can send money directly to your beneficiary’s bank account, at a cash pickup point or straight to their doorstep.
- 24/7 online customer support. You can talk to our customer service specialists whenever you need assistance at any time of the day.