When one bank transfers funds to another bank over the SWIFT network, the initiating bank must provide the recipient bank with the necessary information, including the recipient’s account details and the amount of money to be transferred.

After this, the transaction is authorised, and the information is sent to the SWIFT network, which routes the provided information to the recipient bank. The recipient bank then verifies the information and completes the transfer by debiting the sender’s account and crediting the recipient’s account.

On average, this process takes one to three business days, depending on the banks involved and the number of intermediary banks required.

Like most things, SWIFT transfers are not free: they can be subject to fees or exchange rate markups. While these fees are not prohibitive, customers should know the costs associated with these transactions before initiating them.

Correspondent bank fees are charges levied by a bank to process correspondent transactions on behalf of another bank.

These fees can vary widely depending on the type of transaction, the amount of money being transferred, and the location of the banks involved. They generally include fees related to wire transfers, foreign currency exchange, and other financial services.

In some cases, these fees can be quite high, and they are often passed onto the customer, either by the sending bank or the receiving bank, making it particularly important for customers to understand the associated costs and shop around for the best rates and fees.

International bank transfers typically involve three parties: the sending bank, the intermediary bank, and the receiving bank. Intermediary banks are often used to facilitate the transfer of funds between banks located in different countries or regions.

Intermediary bank charges

When their services are used for an international transfer, intermediary banks charge fees, known as intermediary bank charges.

The exact amount of this fee will vary depending on several factors, including the banks involved, the location of those banks, and the amount of the transfer. It is also possible for multiple intermediary banks to be used in a single international transfer, with each charging its own fee.

In some cases, the sending bank may absorb the cost of the intermediary bank charge, while in other cases, the charge is passed on to the customer.

Beneficiary bank charges

The receiving bank may also charge a fee – known as a beneficiary bank charge – for receiving the funds.

Like intermediary bank charges, the amount of the fee will vary depending on several factors and the sending bank may absorb the cost or pass it on to customers.

Example of charges in a correspondent transaction

Suppose a small Canadian convenience store that has an account with a small local credit union is importing wine from an Australian supplier that has an account with a regional local bank in Australia.

Since these two smaller banks are unlikely to have a relationship with each other, they will need to use intermediary banks to fulfil this transaction. The local Canadian credit union will use its relationship with a large Canadian bank to send payment to a large Australian bank with a relationship with the regional Australian bank.

Each of these larger banks fills the role of a correspondent or intermediary bank in this transaction.

Further, since these banks are unlikely to offer their services for free, several fees must be considered when completing the transaction.

Suppose the local Canadian credit union charges $11 for its part, the Canadian correspondent $20, the Australian correspondent $15, and finally, the regional Australian bank $10.

This $56 in fees may be partially absorbed by one or more of the banks, but more likely, it will be passed on to either the sender or the recipient, depending on the agreement under the contract.

Suppose that the counterparties agreed that the recipient would bear the transaction costs.

The total fee amount is unlikely to be broken down by all the intermediaries involved in a final statement. Instead, it is more likely to appear as a single fee charged by the recipient’s bank.

The exact cost of any given correspondent banking transaction will depend on several factors, such as the size of the transaction and the number of intermediaries involved. Generally, however, firms can expect to pay anywhere from $10 to $100 per transaction.

Expense regulation methods are used to determine who pays for the fees associated with a bank transfer. Several different methods can be used, including:

• OUR (Remitter pays all fees): Under this method, the sender pays all fees associated with the transfer, including any intermediary and beneficiary bank charges. The receiving bank does not deduct any fees from the transferred amount, leaving the beneficiary to receive the entire transfer amount.
• SHA (shared costs): In this method, the transfer costs are split between the sender and the recipient. The sending bank deducts its fees from the transferred amount, and the receiving bank deducts its fees from the received amount. The beneficiary only receives the remaining amount after both banks have deducted their respective fees.
• BEN (beneficiary pays costs): With this approach, the beneficiary is responsible for paying all fees associated with the transfer, including any intermediary bank charges and beneficiary bank charges. As a result, the sending bank does not deduct any fees from the transferred amount, but once the transfer has completed the process, the beneficiary receives a reduced amount.
• SEPA (Single Euro Payments Area): SEPA is a regulatory framework developed by the European Union for simplifying and harmonising payments within the Eurozone. As a result of SEPA, transfers within the Eurozone must be treated the same as domestic transfers and not subject to additional cross-border fees.

In general, a SWIFT transfer will progress through five generic steps:

1. The sender initiates the transfer by providing its bank with the recipient’s account details, including the bank’s SWIFT code, the account number, and the name and address of the recipient.
2. The sender’s bank verifies the sender’s account details and authorises the transfer, debiting the sender’s account for the transfer amount plus any applicable fees.
3. The sender’s bank sends a message to the SWIFT network containing the necessary information about the transfer, including the recipient’s account details and the transfer amount.
4. The SWIFT network routes the message to the recipient’s bank using the bank’s SWIFT code.
5. The recipient’s bank receives the message and verifies the recipient’s account details. If the details are correct, the recipient’s bank credits the recipient’s account with the transfer amount minus any applicable fees.

There are two types of SWIFT transfers: serial and non-serial.

Serial transfers involve a direct transfer from the sender’s bank to the recipient’s bank without involving intermediary banks.

Non-serial transfers, on the other hand, involve one or more intermediary banks to facilitate the transfer between the sender’s bank and the recipient’s bank.

While SWIFT is deeply embedded in the global financial system, other novel solutions strive to disrupt this space. One such example is the cryptocurrency Ripple.

It is important to provide accurate and complete information when transferring funds via SWIFT, as errors or omissions may result in transfers being rejected or delayed. To initiate a SWIFT transfer, senders typically need to provide the following information:

• Recipient’s name and address
• Recipient’s bank name and address
• Recipient’s bank account number
• Recipient’s bank’s SWIFT code (Bank Identifier Code commonly known as “BIC”)
• Sender’s name and address
• Sender’s bank account number
• Sender’s bank’s SWIFT code
• Transfer amount
• Purpose of payment
• Any additional information or instructions (such as invoice numbers, etc.)

Transfers via SWIFT are generally regarded as safe and secure.

The SWIFT network uses a highly secure messaging system with advanced encryption technology to protect the confidentiality of financial messages. It has implemented several security measures to protect against cyber threats. Some of these measures include two-factor authentication, strict password policies, and ongoing monitoring and risk assessments.

SWIFT member banks are also expected to follow the network’s security guidelines and best practices.

Even with these rigorous safeguards in place, however, there have been instances where fraudsters compromised SWIFT transfers. Thankfully, these have generally been isolated incidences caused by weaknesses in individual banks’ security controls rather than a flaw in the SWIFT network itself.