How the SWIFT System Works

SWIFT for Electronic Funds Transfers

Need to transfer money overseas? Today, it is easy to walk into a bank and transfer money anywhere around the globe, but how does this happen? Behind most international money and security transfers is the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system. SWIFT is a vast messaging network banks and other financial institutions use to quickly, accurately, and securely send and receive information, such as money transfer instructions.

More than 11,000 global SWIFT member institutions sent an average of 42 million messages per day through the network in 2021, marking an increase of 11.4% over 2020.1

In this article, we explore what SWIFT does, how it works, and how it makes money.


  • Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a member-owned cooperative that provides safe and secure financial transactions for its members. 
  • This payment network allows individuals and businesses to take electronic or card payments even if the customer or vendor uses a different bank than the payee.
  • SWIFT works by assigning each member institution a unique ID code that identifies not only the bank name but the country, city, and branch.

Inside a SWIFT Transaction

SWIFT is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes. Although SWIFT has become a crucial part of global financial infrastructure, it is not a financial institution itself: SWIFT does not hold or transfer assets. Rather, its utility lies in its power to facilitate secure, efficient communication between member institutions.

SWIFT assigns each financial organization a unique code that has either eight characters or 11 characters. The code is interchangeably called the bank identifier code (BIC), SWIFT code, SWIFT ID, or ISO 9362 code.2 To understand how the code is assigned, let’s look at Italian bank UniCredit Banca, headquartered in Milan. It has the eight-character SWIFT code UNCRITMM.3

  • First four characters: the institute code (UNCR for UniCredit Banca)
  • Next two characters: the country code (IT for the country Italy)
  • Next two characters: the location/city code (MM for Milan)
  • Last three characters: optional, but organizations use them to assign codes to individual branches.

Let’s assume a Bank of America Corp. (BAC) branch customer in New York wants to send money to their friend who banks at the UniCredit Banca branch in Venice. The New York customer can walk into their Bank of America branch with their friend’s account number and UniCredit Banca’s unique SWIFT code for its Venice branch.

Bank of America will send a payment transfer SWIFT message to the UniCredit Banca branch over the secure SWIFT network. When Unicredit Banca receives the SWIFT message about the incoming payment, it will clear and credit the money to the Italian friend’s account.

As powerful as SWIFT is, keep in mind that it is only a messaging system. SWIFT does not hold any funds or securities, nor does it manage client accounts.4

The World Before SWIFT

Prior to SWIFT, telex was the only available means of message confirmation for international funds transfer. Telex was hampered by low speed, security concerns, and a free message format. In other words, Telex did not have a unified system of codes like SWIFT to name banks and describe transactions. Telex senders had to describe every transaction in sentences that were then interpreted and executed by the receiver. This led to many human errors, as well as slower processing times.5 

To circumvent these problems, the SWIFT system was formed in 1973.6 Six major international banks formed a cooperative society to operate a global network that would transfer financial messages in a secure and timely manner.7

Why Is SWIFT Dominant?

According to the London School of Economics, “Support for a shared network…began to achieve institutional form…in the late 1960s, when the Société Financière Européenne (SFE, a consortium of six major banks based in Luxembourg and Paris), initiated a ‘message-switching project.'”8

SWIFT was then founded in 1973 with 239 banks in 15 countries. By 1977, it expanded to 518 institutions in 22 countries. In 2022, there were more than 11,000 institutional members hailing from more than 200 countries and territories.9

Although there are other message services like FedwireRipple, and Clearing House Interbank Payments System (CHIPS), SWIFT continues to retain its dominant position in the market. Its success may be attributed to how it continually adds new message codes to transmit different financial transactions and to the security of its platform.

Though SWIFT primarily started for simple payment instructions, it now sends messages for a wide variety of actions, including security transactions, treasury transactions, trade transactions, and system transactions. In Swift’s latest report, from January 2022, data showed 44.5% of SWIFT traffic is still for payment-based messages, while 50.6% represents security transactions, and the remaining traffic flows to Treasury, trade, and system transactions.10

SWIFT’s global dominance has led it to become a significant consideration in geopolitics. In 2012, the European Union sanctioned banks in Iran, disconnecting them from the SWIFT system. In February 2022, leaders in the U.S. and EU agreed to remove some banks in Russia from SWIFT.

Who Uses SWIFT?

In the beginning, SWIFT founders designed the network to facilitate communication about Treasury and correspondent transactions only. The robustness of the message format design allowed for the huge scalability through which SWIFT gradually expanded to provide services to the following:

  • Banks
  • Brokerage institutes and trading houses
  • Securities dealers
  • Asset management companies
  • Clearinghouses
  • Depositories
  • Exchanges
  • Corporate business houses
  • Treasury market participants and service providers
  • Foreign exchange and money brokers111213

Services SWIFT Offers

The SWIFT system offers many services that assist businesses and individuals to complete seamless and accurate business transactions. Some of the services offered are listed below.


SWIFT connections enable access to a variety of applications, which include real-time instruction matching for treasury and forex transactions, banking market infrastructure for processing payment instructions between banks, and securities market infrastructure for processing clearing and settlement instructions for payments, securities, forex, and derivatives transactions.14

Business intelligence

SWIFT has recently introduced dashboards and reporting utilities that enable its clients to get a dynamic, real-time view of monitoring the messages, activity, trade flow, and reporting.15 The reports enable filtering based on region, country, message types, and related parameters.

Compliance services

Aimed at services around financial crime compliance, SWIFT offers reporting and utilities for Know Your Customer (KYC), sanctions, and anti-money laundering (AML).14

Messaging, connectivity, and software solutions

The core of the SWIFT business resides in providing a secure, reliable, and scalable network for the smooth movement of messages. Through its various messaging hubs, software, and network connections, SWIFT offers multiple products and services that enable its end clients to send and receive transactional messages.

How Does SWIFT Make Money?

SWIFT is a cooperative organization owned by its members.16 Members are categorized into classes based on share ownership.17 All members pay a one-time joining fee plus annual support charges that vary by member classes. 

SWIFT also charges users for each message based on message type and length. These charges also vary depending upon the bank’s usage volume; different charge tiers exist for banks that generate different volumes of messages.18

In addition, SWIFT has launched additional services as described above. These are backed by the long history of data maintained by SWIFT. These include business intelligence, reference data, and compliance services and offer SWIFT other income streams.14

Challenges for SWIFT

The majority of SWIFT clients process huge transactional volumes for which manual entry of instructions is not practical. The need for the automation of SWIFT message creation, processing, and transmission is growing. However, this comes at a cost and increased operational overhead.

Although SWIFT has been successful in providing software for automation, that too comes at a cost. SWIFT may need to tap into these problem areas for the majority of its client base. Automated solutions within this space may bring in a new stream of income for SWIFT and keep clients engaged in the long run.

SWIFT and Sanctions

Because of their reliance on SWIFT to conduct fast, seamless, secure communication, countries around the world have an incentive to remain in good standing with the organization. SWIFT is overseen by central banks from Group of Ten (G10) countries, but it is a neutral organization operating for the benefit of all of its members.

In recent years, the possible use of SWIFT membership as a potential sanction against members has emerged multiple times. In 2012, for example, the European Union passed a sanction against Iran that compelled SWIFT to disconnect sanctioned Iranian banks. And in 2022, leaders from the U.K., EU, U.S., and Canada announced selected banks in Russia would be disconnected from SWIFT over its invasion of Ukraine.19

In a nutshell, what is SWIFT?

Behind most international money and security transfers is the Society for Worldwide Interbank Financial Telecommunications, known as the SWIFT system. SWIFT is a vast messaging network banks and other financial institutions use to quickly, accurately, and securely send and receive information, such as money transfer instructions.

Was Russia disconnected from SWIFT due to its invasion of Ukraine?

Yes. As of Feb. 28, 2022, the United States, EU, U.K., and Canada have agreed to enhance economic sanctions against Russia by removing select Russian banks from the SWIFT messaging system. Japan has announced it will do the same.

How important is SWIFT to global finance?

SWIFT has become a crucial part of global financial infrastructure. More than 11,000 global SWIFT member institutions sent an average of 42 million messages per day through the network in 2021, marking an increase of 11.4% over 2020.

The Bottom Line

SWIFT has retained its dominant position in the global processing of transactional messages. It has recently forayed into other areas, such as offering reporting utilities and data for business intelligence, which indicates its willingness to remain innovative. In the short- to midterm, SWIFT seems poised to continue dominating the market.