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:

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

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:

IBAN

The SWIFT Codes

Bank Codes

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 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.