What Is SWIFT? How the Global Banking System Works

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The SWIFT system, short for the Society for Worldwide Interbank Financial Telecommunication, is a secure messaging network that banks and other financial institutions use to send standardized instructions about payments, securities trades and other transactions to one another. SWIFT does not move money. It carries the messages that tell banks what to debit, credit or settle. The money itself moves through accounts that banks hold with each other and through domestic settlement systems.

SWIFT is a cooperative headquartered in Belgium that connects more than 11,000 financial institutions worldwide, each identified by a unique code, the BIC (often called a SWIFT code). When a customer sends an international wire, SWIFT usually carries the payment instruction from one bank to the next.

What SWIFT does and does not do

The most common misunderstanding about SWIFT is that a “SWIFT transfer” means SWIFT moved the money. It did not. A bank composes a message in a fixed format, SWIFT authenticates and delivers it, and the receiving bank acts on it.

Standardization is the core of the service. Each message type has defined fields for the amount, currency, value date, ordering customer, beneficiary, intermediary banks and charges. Because both sides read the same fields the same way, banks can process messages automatically rather than interpreting free text.

SWIFT also does not hold deposits or client accounts, guarantee that a payment will be completed, decide when funds become available or set the fees your bank or intermediary banks charge. Those functions belong to the banks involved and the payment and settlement systems they use.

How a SWIFT payment works

An international payment typically involves two layers: the messaging layer (SWIFT) and the settlement layer (the accounts where value actually changes hands).

On the settlement side, banks rely on correspondent banking. A bank in one country holds an account at a bank in another country, often in that country’s currency. From the account holder’s point of view this is a nostro account (“our money held by you”); from the host bank’s view it is a vostro account (“your money held by us”). When banks do not have a direct relationship, one or more intermediary banks sit in the chain, each holding accounts with the next.

A simplified flow looks like this:

1. The sender’s bank receives the customer’s instruction and checks it for sanctions screening, anti-money laundering (AML) and account balance.
2. The sender’s bank sends a SWIFT payment message to the next bank in the chain, identifying the beneficiary bank by its BIC.
3. Each bank in the chain debits and credits the relevant correspondent accounts and forwards the instruction.
4. The beneficiary bank receives the message, applies its own checks and credits the recipient’s account.

Final settlement between banks may also pass through a domestic system such as Fedwire in the United States, depending on the currency and the banks involved. This multi-step structure explains why international wires can take longer and cost more than domestic transfers: each hop can add processing time, compliance review and, sometimes, a fee.

Reading a SWIFT/BIC code

The BIC tells the network exactly which institution, and optionally which branch, should receive a message. Using the code UNCRITMM for UniCredit Banca in Milan:

• UNCR (characters 1 to 4): the institution code, identifying UniCredit Banca.
• IT (characters 5 to 6): the country code, Italy.
• MM (characters 7 to 8): the location code, Milan.
• Optional characters 9 to 11: a branch code. An eight-character code generally points to the institution’s primary office; an 11-character code points to a specific branch or department.

A bank can have more than one BIC, and the code a bank asks you to use may depend on whether you are receiving U.S. dollars or a foreign currency. Use the code your recipient’s bank provides for that specific payment.

Message types

SWIFT messages are grouped by purpose: customer payments, bank-to-bank transfers, foreign exchange and treasury confirmations, securities instructions, trade finance and system messages. In the traditional “MT” format, the MT103 is the standard message for a single customer credit transfer, the type most international wires generate, which is why you may see “MT103” when asking a bank to trace a wire. SWIFT has also been moving the industry toward the ISO 20022 standard, which carries richer, more structured data in each message.

Example of a SWIFT transfer

Hypothetical example for illustration only.

A customer in the United States wants to send money to a friend who banks with UniCredit Banca in Venice. The customer goes to a Bank of America branch (or its online banking) with the friend’s full name, address, account number, the bank’s name and address, and the bank’s SWIFT code.

Bank of America sends a payment message over SWIFT toward UniCredit Banca. If the two banks hold accounts with each other, the transfer can settle directly. If not, an intermediary correspondent bank sits between them, and the instruction passes through it. When UniCredit Banca receives the message and the funds are settled, it credits the friend’s account.

Two details in this flow affect how much arrives:

• Charge instruction. SWIFT payment messages carry a charges field. “OUR” means the sender pays all charges, “SHA” means fees are shared (sender pays its bank, recipient bears the rest) and “BEN” means the recipient bears all charges. Under SHA or BEN, intermediary fees may be deducted from the amount in transit, so the recipient can receive less than the sender sent.
• Currency conversion. If the sender’s bank converts dollars to euros before sending, its exchange rate applies. If dollars are sent and converted on arrival, the receiving bank’s rate applies. The conversion point changes both the rate and who sets it.

How to send or receive money internationally via SWIFT

For a consumer, sending money via SWIFT is the same as requesting an international wire transfer. Banks generally ask for:

• The recipient’s bank name, address, country and any local routing code
• The recipient’s full legal name, current address and account number (or IBAN, where used)
• The SWIFT/BIC code of the recipient’s bank
• Your government-issued ID
• The purpose of the payment
• Any additional documents your bank requires

The process usually runs as follows:

1. Request an international wire at a branch or through your bank’s online system.
2. Review the fees, exchange rate, sending limits and expected delivery time before confirming.
3. Enter the destination country, the currency to send and the recipient details above.
4. Submit the transfer and keep the confirmation and reference number, which your bank needs if the payment must be traced or recalled.

To receive money, give the sender your bank’s SWIFT code, your account details and any intermediary instructions your bank publishes. Ask your bank which code to use for the currency being sent.

Before SWIFT: telex

Before SWIFT, international payment confirmations relied on telex, a network of teleprinters that sent typed text over telegraph lines. With no common message format and no unified codes for naming banks or describing transactions, each instruction was written out in sentences the receiving bank had to interpret manually. Telex was slow, hard to secure and error-prone.

Work on a shared, automated network began in the late 1960s, when the Société Financière Européenne, a consortium of six major banks, started a message-switching project. SWIFT itself was founded in 1973 by 239 banks from 15 countries, and its messaging services went live in 1977.

The network was first designed for treasury and correspondent banking messages, but its structured format expanded into securities, trade and system messages. Users now include banks, brokerages and trading houses, securities dealers, asset managers, clearinghouses and depositories, exchanges, corporate treasury departments, and foreign exchange and money brokers.

Ownership, oversight and revenue

SWIFT is a member-owned cooperative. Its shareholders are member financial institutions, and the organization operates for the benefit of its members rather than as a profit-maximizing company.

Oversight sits with the central banks of the Group of Ten countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States. Belgium’s central bank acts as lead overseer, with the others, including the U.S. Federal Reserve, participating. Oversight focuses on SWIFT’s security, reliability and risk management, because a failure of the network would affect payments worldwide.

SWIFT’s revenue comes from its users:

• Joining fees. Members pay a one-time fee to join.
• Annual support charges, which vary by member class. Member classes are tied to share ownership.
• Per-message charges, based on message type and length, with tiered pricing that depends on a bank’s message volume.
• Additional services, such as business intelligence, reference data and compliance tools.

Services beyond payment messaging

Around its core business of messaging, connectivity and software, SWIFT offers:

• Applications for real-time matching of treasury and FX confirmations and for processing payment, clearing and settlement instructions for payments, securities, FX and derivatives.
• Business intelligence dashboards for monitoring message activity by region, country, message type and other parameters.
• Compliance services covering Know Your Customer (KYC), sanctions screening and AML.

Why SWIFT is important

SWIFT is not the only system that carries payment instructions or value. Fedwire, the Clearing House Interbank Payments System (CHIPS) and blockchain-based networks such as Ripple do too. SWIFT’s position comes from its reach and its standards: a bank on SWIFT can send a structured, authenticated message to almost any counterparty abroad. Its security record and steady addition of new message types have reinforced that position.

That reach also creates dependence, so staying connected and in good standing matters to banks and the countries where they operate. SWIFT’s governance is designed to keep it neutral, but its legal home in Belgium means EU law applies to it.

SWIFT and economic sanctions

Disconnection from SWIFT has become one of the more visible financial sanctions. In 2012, an EU sanction against Iran required SWIFT to disconnect sanctioned Iranian banks. In 2022, EU Council Regulation (EU) 833/2014 prohibited SWIFT and other financial messaging providers from serving designated Russian entities and their subsidiaries, and Council Regulation (EU) 765/2006 applied a similar prohibition to designated Belarusian entities. Those banks were disconnected as a result.

A disconnected bank can still hold money and process domestic payments, but its cross-border instructions must use slower, more manual or alternative routes. Some countries have built their own messaging systems partly to reduce this exposure, a theme in BRICS cooperation.

Limitations of SWIFT

• It moves information, not value. A transfer can stall in settlement even after the message is delivered.
• Multi-hop chains add time and cost, and charges can be deducted in transit.
• Operational overhead. Automating message creation and processing at large volumes requires software and integration, which adds cost even when SWIFT supplies the tools.
• Not universal at the retail level. Many smaller U.S. banks and most credit unions are not direct SWIFT members and route international wires through a larger correspondent bank, so you may be given that bank’s SWIFT code along with your own account details.
• Political exposure. As the sanctions cases show, access can be cut off by law.

Newer fintech providers often compete on the retail side by netting payments within their own accounts in different countries, which can avoid long correspondent chains for some transfers.

SWIFT vs. related terms

SWIFT/BIC code vs. IBAN. A BIC identifies a bank (and optionally a branch). An International Bank Account Number identifies a specific account and is used in many countries, especially in Europe. A payment to such a country often needs both. The United States does not use IBANs.

SWIFT code vs. ABA routing number. The nine-digit routing number identifies a U.S. bank for domestic transfers such as ACH and Fedwire. A SWIFT code identifies it internationally.

SWIFT vs. Fedwire and CHIPS. Fedwire, run by the Federal Reserve, and CHIPS are U.S. systems for transferring and settling dollar payments between banks. SWIFT carries messages between institutions across borders and does not settle funds.

SWIFT vs. ACH. The Automated Clearing House processes batched domestic payments in the U.S., such as direct deposits and bill payments. It is a clearing and settlement network, not an international messaging service.

SWIFT vs. digital payment apps. Services such as PayPal move value between accounts on their own platforms. When their money reaches or leaves the banking system across borders, the underlying bank transfers may still use SWIFT.

FAQs

The Bottom Line

Anyone sending or receiving an international wire relies on SWIFT, even through a small bank or credit union that routes payments via a larger correspondent. Because SWIFT only carries instructions, delays, deductions and exchange rates come from the banks in the chain. Get the exact SWIFT code your recipient's bank provides, check the fees, charge option and conversion point before confirming, and keep the reference number in case the wire needs tracing.