What is SWIFT and how does it work?| North Loop Official Blog
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North Loop
13 Jan 2020

What is SWIFT and how does it work?

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If you’ve ever made or received an international bank transfer, you’ve encountered the term ‘SWIFT’. Either to put in a ‘SWIFT Code’ for a bank, or to provide your own bank’s SWIFT code. This commonly used term in the financial system seems to indicate a unique code for our banks - but what exactly is it? And what does it mean?

What is SWIFT

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. Founded in 1973 in Brussels, Belgium, the SWIFT Network was created to help banks across the world communicate with each other through common standards and processes.

What is the SWIFT network?

Banks operate by different rules in every country. Therefore, they need a common, universal way to communicate with other banks in other countries to ensure money is sent quickly and safely.
The SWIFT network enables over 10,000 financial institutions in 212 countries to communicate over a secure network - informing each other about transfers that are happening between them. Although the majority of SWIFT members are banks, other organisations such as money brokers also use it.

How does the SWIFT network work?

As a customer of a bank, you’ll encounter SWIFT in two ways - either when you need to send money overseas, or receive an international wire. You use a SWIFT code for a particular bank. Sometimes you’ll be asked for an intermediary/correspondent bank’s SWIFT code as well. This is because some banks rely on an intermediary bank to help with the transfer. The best way for you to think of it is like traveling by subway or train - sometimes, you need to change trains to get to your destination as not every station is connected.
On the banks’ side, things are more complex. Interestingly, no money is transferred via SWIFT - it is a messaging system that transfers payment orders between banks. The banks then reconcile this on the backend, without you ever realizing!

So is the SWIFT network actually good?

It’s been nearly 50 years since the SWIFT network was created. It is, naturally, fairly old. Like Telex, the antiquated system it replaced, SWIFT has become slow and expensive in the 21st century where everything can be transmitted instantly.
SWIFT fees are often expensive, and you can be charged for:
  • Banks charge opaque FX rates when you’re converting between currencies.
  • SWIFT transfers can take over 5 days to reach.
  • Sending, receiving and corresponding banks can all charge fees on your transfer’s journey.

If you’re sending smaller amounts, the SWIFT network can be prohibitively expensive.

North Loop and SWIFT

North Loop uses both the SWIFT network and other local networks to reduce the cost of sending money overseas. If you’re sending money to the US, it will cost you almost nothing versus SWIFT/ other bank transfers. And it’s much faster as it doesn’t rely on the SWIFT network - but just as secure.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.