Following the increase of cross-border business activity and transactions, understanding the best payment option to transfer money from one country to another is crucial for a business.
Most businesses use SWIFT wire transfers to process their cross-border transactions and accept payments from customers.
While SWIFT transfers can be a good option for some companies, their popularity is mainly attributable to the fact that companies are unaware of other equally effective methods than a SWIFT transfer.
This article outlines everything you need to know about local transfers and SWIFT transfers to ensure your business makes the right decision when choosing which to use to process their payments.
What are SWIFT transfers?
The term 'SWIFT' stands for the Society for Worldwide Interbank Financial Telecommunication and refers to the worldwide network of banks that work collaboratively to provide their customers with the service of international bank transfers.
SWIFT transfers offer a secure and convenient electronic global payment system.
This process of international bank transfers is also more commonly known as 'wire' transfers, which have become one of the most popular ways to send money across borders.
How does a SWIFT Transfer work?
All transfers are carried out through the payer's bank, which gets debited and is routed through several intermediary banks within the network.
Following this, the recipient's bank credits their account.
For example, if you were to send money from a JP Morgan bank account in the United Kingdom to an HSBC bank account in Hong Kong, the funds would be transferred through a SWIFT network.
A SWIFT network also involves using a SWIFT numerical code that assists in identifying banks and other financial institutions when an international bank transfer is being processed.
Therefore, each time you want to make a SWIFT transfer, you will have to provide the SWIFT code of the recipient's bank when you make the transfer.
How can you find the SWIFT code of a bank?
Although some banks directly highlight the SWIFT code on their bank statements, this is not the case for all banks.
The best way to find a bank's SWIFT account is to visit the bank's website.
Always keep in mind that you are not required to provide your bank's SWIFT code.
It is always the recipient's SWIFT code that is being asked for.
Ensure to avoid confusing a SWIFT code with an IBAN, which is much longer than a SWIFT code as it contains more bank information.
You can use this website to find the SWIFT code of any bank.
How much does a SWIFT transfer cost?
The cost of a SWIFT transfer depends on the particular bank, or financial institution is used to process the payment.
This usually involves two types of charges; the fees and the exchange rate.
The fees also include the transfer fee and the recipient fee, which are normally set at a fixed rate by each bank.
In some cases, you may also be charged a 'correspondent bank fee' if an intermediary bank is used to transfer the money.
There is always an option to speed up the time it takes to process your payment in case of emergencies by paying a priority payment fee.
Next up is the exchange rate. Big traditional banks usually do not charge the best exchange rates because customers normally do not question their prices.
The exchange rate charged will also depend on the amount of money you wish to transfer.
The fees can be quite high if smaller amounts of money are sent.
How long does a SWIFT transfer take to be processed?
A SWIFT transfer can take up to 1-4 business days for the funds to reach the recipient's bank account.
The time taken to process a transfer is also based on the country where the money is being sent, different time zones, and different banking methods used by the recipient country.
It also depends on the number of intermediary banks or other financial institutions involved in processing the transfer.
Fraud prevention checks can also cause delays if the SWIFT network highlights any suspicious account activity.
What is a local transfer?
A local bank transfer involves a deposit being made into a foreign bank account with an intermediary organization or financial institution that communicates between the payer and the recipient.
Simply put, a local transfer uses a network of financial institutions through which you can pay the intended recipient using their local bank.
The intermediaries are used to operate between each side to clear the bank transfer payment, which is also referred to as remittance.
How do local transfers work?
For example, suppose you are a company in Hong Kong paying a business or an individual in another country.
In that case, the recipient will be paid using a local bank transfer.
Here, the funds are processed by the recipient's local bank in their local currency and will be settled through their local payment system.
To process a payment, all you need are the recipient's bank details, including their local bank account number and a reference number.
How much do local transfers cost?
While SWIFT transfers were more commonly used for transferring money abroad, local transfers are now gaining popularity as they tend to better suit customer preferences, particularly because there are no hidden fees.
Local transfers are also cheaper than SWIFT transfers as the payer saves on foreign exchange costs.
All unreasonable exchange rates set by banks looking to make a profit are eliminated and allow payers to pay much lower fees.
Which option should you choose?
It would be best if you matched the characteristics of each method to your personal needs, preferences, and lifestyle after developing a good understanding of each bank transfer method.
You should consider the time. If the speed and time of the transfer are important to you depending on your circumstances, then it is better to opt for a SWIFT wire transfer.
Suppose the recipient needs the money as soon as possible in an emergency.
In that case, it may be extremely inconvenient for both the payer and the recipient to use a local transfer which takes more time.
The fees are also an important factor.
The main advantage of local transfers compared to SWIFT transfers is that they do not include any other hidden fees.
Additionally, through a local bank transfer, you pay lower fees as you save on foreign exchange and other costs associated with other methods of cross-border transfers.
However, the transfer must be initiated from the country associated with the currency in which the transfer is being made.
For example, if you are transferring money to the United States, the transfer must be made in US dollars.
SWIFT transfers are a reliable bank transfer method that has been in use for many years and are used to make nearly 50% of all global cross-border payments.
However, you should remember that a SWIFT network does not handle your money.
The responsibility for that falls on your bank or any other financial institution of your choice.
Therefore, it is extremely important to use a bank that is regulated by your local authority and one that has the right anti-money laundering and fraud checks to ensure that all your transactions are made safely and securely.