Statrys Payment Platform Ecosystem

SWIFT Payment: What is it and how does it Work?

Jonathan Cusimano
Published: 16 Jun 2020

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    SWIFT Payment is the acronym of the Society for Worldwide Interbank Financial Telecommunication, an organization based in Brussels that has been around since the early 1970s. What are SWIFT payments and how do they work?

    In this article, we will explain what SWIFT Payment is and demystify how it works.

    Looking to see what makes SWIFT different from BIC? Check out this article! The answer might surprise you.

    What is the SWIFT network?

    SWIFT was created to help banks communicate faster and more securely among themselves in relation to the processing of international payments.

    We use the word ‘communication’ because you’ll read in the next few lines that SWIFT is nothing more than a messenger between banks.

    Basically what SWIFT does is channel the message enclosing payment instructions from the issuing bank, i.e. the bank of the payor, all the way to the remitting bank, i.e. the bank of the beneficiary.

    All the banks engaged in this process will then move funds from one account to another based on an underlying network of Nostro / Vostro accounts.

    Nostro/vostro accounts are used when one bank has money deposited in an account opened with another bank for the purpose of executing international transactions.

    As both banks keep records of the amount of money deposited in the account, this leads to two mirroring sets of ledger known as the Nostro and Vostro account.

    The Nostro account is the term used by the bank holding money in the account, whilst Vostro account is the term used by the bank having the account opened in their books.

    Let’s see how this combination of SWIFT message and Nostro / Vostro account works in practice.

    How does SWIFT Payment work?

    Let’s take a look at the example below:

    Your US client, banks with Bank of America, gives instructions to pay USD 15,000 to your bank account with DBS Hong Kong.

    Because both banks are members of the SWIFT network, the payment will be processed using a SWIFT message

    Scenario 1 – Both banks have a direct commercial relationship via a Nostro / Vostro account

    SWIFT message issued by Bank of America will be directly addressed to DBS Hong Kong and the funds are transferred directly between the two banks as follows:

    • Bank of America will debit your US client’s bank account by USD 15,000
    • Bank of America will credit USD 15,000 to its Nostro account opened with DBS Hong Kong
    • DBS Hong Kong will debit USD 15,000 from Bank of America’s Nostro Account
    • DBS Hong Kong will credit USD 15,000 to your bank account, minus any fees charged for the transfer.

    Scenario 2 – Both banks don’t have a direct commercial relationship (i.e. no Nostro / Vostro account

    As the banks don’t have a direct commercial relationship, SWIFT will determine how to pass the SWIFT message to successive banks which all have Nostro / Vostro accounts with one another.

    That’s where intermediary banks (also known as correspondent banks) come into the picture.

    Assuming that Deutsche Bank plays the role of the intermediary bank in this transaction, this is what would happen:

    • Bank of America will debit your US client’s bank account by USD 15,000
    • Bank of America will credit USD 15,000 to its Nostro account opened with Deutsche Bank
    • Deutsche Bank will debit USD 15,000 from Bank of America’s Nostro Account
    • Deutsche Bank will deduct its fee (let’s say USD 20) for facilitating this transaction and credit the balance, ie. USD 14,980, to their Nostro Account with DBS Hong Kong.
    • DBS Hong Kong will debit USD 14,980 from Deutsche Bank’s Nostro Account
    • DBS Hong Kong will credit USD 14,980 to your bank account, minus any fees charged for the transfer.

    Bank transfer with an Intermediary bank

    As you can appreciate, the more intermediary banks engaged in the transaction, the higher the fees deducted from the paid amount, the longer the payment will take to be credited to your account, and finally the higher the risk to have the SWIFT message lost.

    Which banks use SWIFT?

    More than 10,000 financial institutions in more than 200 countries are members of the SWIFT network, making it the largest international payment network worldwide.

    Here below the SWIFT codes of the main commercial banks in Hong Kong:

    • DBS – DHBKHKHH
    • HSBC – HSBCHKHHHKH
    • Hang Seng Bank – HASEHKHH
    • Standard Chartered – SCBLHKHH
    • Bank of China – BKCHHKHH
    • ICBC – UBHKHKHH
    • Bank of East Asia – BEASHKHH

    To check or search for the SWIFT code of any other bank, use one of these trustworthy tools:

    We recommend that you always check the SWIFT code before making an international payment as it will save you time and money that would otherwise be used for recovering funds sent with the wrong swift code.

    Also, keep in mind that SWIFT codes and BIC are two ways to name the same thing. For more information on this topic, read our article, or watch our video below.

    How does SWIFT make money?

    SWIFT is owned by its members. All members pay a one-time entry fee as well as annual support fees based on the level of their membership.

    SWIFT also charges end-users (that’s you!) for each message sent.

    These charges vary with the bank’s usage volume, which partly explains why you pay different fees for international payments from one bank to another (Another reason is obviously that each bank has its own commercial policy on how much they charge their clients)

    Other sources of income for SWIFT are coming from additional services such as business intelligence, reference data, and compliance services.

    SWIFT’s latest services launch is the “SWIFT global payments innovation (GPI)”. SWIFT GPI aims to improve the transparency and traceability of cross-border payments.

    In other words, this means that if your bank is a member of the SWIFT network, they may check where a payment is at any given time of the day.

    For more details about international payment check our guide providing all the important information.

    Looking to make smarter payments? Check out Statry's digital business account!

    author
    jonathan Statrys
    Jonathan Cusimano

    Jonathan Cusimano is Head of FX at Statrys. With nearly a decade of experience in banking and Fintech, Jonathan has advised and assisted many SMEs in their FX hedging and treasury management strategies.

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    Statrys Limited is licensed as a Money Service Operator (No. 19-02-02726) in Hong Kong. ‍ Statrys UK Limited is a Small Payment Institution (FRM: 911226) registered with the Financial Conduct Authority in the United Kingdom. Statrys UK Limited (FRM: 902805) is a registered agent of PayrNet Limited (FRM:900594), an Electronic Money Institution authorised by the Financial Conduct Authority in the United Kingdom under the Electronic Money Regulations 2011 for the issuing of electronic money. Trade financing services are offered by our partner, Velotrade Management Limited, regulated by the Securities and Futures Commission of Hong Kong (CE Ref #BJL007)