The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a network that enables banks, Money Service Businesses and other financial institutions worldwide (called ‘SWIFT Members’) to communicate information about financial transactions (primarily cross-border international payments) between one another in a secure, standardized and reliable environment.
Each ‘SWIFT Member’ is allocated a unique ‘SWIFT Code’ which identifies that particular financial institution and these are used to communicate and send secure messages between members. The SWIFT network is the communication hub for these members to send payment and other instructions between one another.
The way it works is that banks will have a banking or ‘Correspondent’ relationship in place whereby each bank can send or receive payment instructions from one another via the SWIFT messaging system. So Bank A can send an instruction via the SWIFT system to Bank B to make a payment to Recipient C in the settlement country where Bank B is based (or vice versa).
The majority of international payments worldwide are sent between banks via the SWIFT network however this does and can result in high sending and receiving fees charged by the originating and recipient (or Correspondent) banks as a service fee needs to be paid to SWIFT for use of their system and messaging service.
The SWIFT service fee typically makes international payments via the SWIFT system very expensive compared to local domestic payments within a particular country.