How Does SWIFT Work?

Ever wondered how does the SWIFT money transfer work? Here is a small brief explanation on how SWIFT moves money. The answer may surprise you.


Have you ever wondered how SWIFT transfers money?

Hello my name is Faisal Khan, I’m a banking and a payments consultant, I’m going to answer this question today.

SWIFT does not transfer money. It is a common misnomer that SWIFT IS somehow a company that transfers money from Bank A to Bank B and it’s a payment network.

SWIFT is a messaging network.

SWIFT simply passes messages between banks in a very secure manner. Money, in order for it to be moved it’s not actually moved. People don’t understand how money actually moves. It’s a ledger entry. A bank has a ledger, another bank gives a ledger and they agree to do debit and credit, you know, double accounting on them and money is essentially moved.

The role that SWIFT plays is one of recognition. When a swift message comes from Bank A to Bank B to pay out a certain person, Bank B will look at it. Yes it’s coming from Bank A, a place where we have an account coming to Bank B where we may have a NOSTRO or a VOSTRO account, and yes they will do a debit or a credit and make the payout.

SWIFT does not transfer money. SWIFT simply transfers messages. It’s like you going to your mom and saying, you know, or let’s say a mother going to the father and saying ‘hey can you pay out Johnny’, and if she writes a note and the father recognizes the note, then they’ll pay Johnny out. So that’s it. It’s just a messaging platform. It is nothing more, and this is why SWIFT is in so much, let’s say under the news etc. because when that messaging platform can be hacked money can actually be taken out and siphoned off from one of the banks or two other banks or many other banks concerned. Case in example is what happened in Bangladesh.

So, SWIFT is a messaging platform and these are exactly the kind of platforms that the likes of Steller, the likes of Ripple, and Ethereum and other payment protocols that are coming out are trying to disrupt because they say SWIFT’s time is up.

I hope that I answered the question on, you know, is SWIFT a payment network or not. It’s not clearly as we’ve mentioned. Till next time, take care.

This page was last updated on September 1, 2022.

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