SWIFT & SEPA: How international money transfers actually work 💸

If you are wondering how international money transfers work, you’re in the right place. Back in the ‘80s, the quickest way to send money from London to New York was to physically take cash with you on a plane, just like in the movies. Surprisingly, this still holds true today, but have you ever wondered why?

We have already explained how money transfers work between two accounts held with the same payment service provider (Intra-account transfers), as well as transfers between two different payment service providers (Inter-account transfers). In case you missed that post, we recommend going back and reading it before you move on - it will help you understand the world of SWIFT and SEPA payments.

International money transfers 💸

International money transfers are basically inter-account transfers, only in this case, the two payment service providers happen to be in different countries, which makes things slightly more complex. The two payment service providers need to have an established relationship in order to facilitate the transfer.

The two most common ways to transfer money internationally are known as a SWIFT and a SEPA transfer.

What is a SWIFT transfer? 🌐

The SWIFT payment system enables these institutions to securely send and receive information on financial transactions in a standardized way. This ultimately allows money to be sent from one payment service provider to another, virtually anywhere in the world and in many different currencies.

But this system is far from perfect. SWIFT does not actually send money, it simply sends messages between the payment service providers. Because of this, other systems that require more human intervention must be used to transfer the actual funds and this, in turn, makes SWIFT transfers slow. What’s more, the complex nature of these transfers usually incur a fee which nearly always gets passed on to consumers.

How does a SWIFT transfer work? 🤔

Let’s assume John wants to send £20 from his account in the UK to Alice’s account held with a payment service provider in Singapore. Depending on the provider’s relationship, there are two ways in which this transfer can take place:

Payment service providers have a direct relationship ❤️

If both payment service providers have a direct relationship with each other, or in other words, if provider 1 has a commercial account with provider 2 and viceversa, the transaction would look like this:

John’s payment service provider (Barclays UK) will send a SWIFT message to Alice’s payment service provider (Lloyds Singapore), informing them of the transfer. Once the message is received (usually within minutes), the funds can be transferred directly between the two payment service providers:

1. John’s payment service provider (Barclays) will debit John’s personal account by £20. ➖
2. John’s payment service provider will credit Lloyds’ commercial account held with Barclays by £20. ➕
3. Alice’s payment service provider (Lloyds) will credit her personal account by £20. ➕

Since the payment service providers have a direct relationship, they are able to easily moves the funds across, which keeps fees to a minimum and makes the transfer happen quickly.

Payment service providers have no direct relationship 💔

If the payment service providers don’t have a direct relationship, one or more intermediary providers must be found to facilitate the transfer.

So, John’s payment service provider (provider 1) will once again send a SWIFT message to Alice’s payment service provider (provider 2), informing them of the incoming transfer. But since neither providers hold accounts with one another, SWIFT will find an intermediary where both payment service provider have commercial accounts - let’s call it payment service provider X. Once the intermediary is found, the funds can be processed at the end of the day (or based on some other predetermined schedule):

1. Payment service provider 1 will debit John’s personal account by £20. ➖
2. Payment service provider 1 will ask payment service provider X (the intermediary provider) to debit their commercial account (Provider 1’s) by £20 ➖, and credit Provider 2’s commercial account. ➕
3. Provider X deducts a small fee for acting as an intermediary (let’s say £0.40 ➖) from the amount being transferred, and credits Provider 2’s commercial account by £19.60. ➕
4. Provider 2 will then credit Alice’s personal account by £19.60. ➕

Since there were more operations happening behind the scenes, this transfer is more expensive (notice the hypothetical £0.40 fee) and takes longer to complete (usually between 3 to 5 working days). In this case, there was only one intermediary provider (Providrr X), but some transfers can require two or more intermediaries, which introduces even more fees and delays. 🤨

But what if the transfer was from one currency to another? One of the payment service providers would have made the currency exchange, usually at a less than desirable rate, adding to the total cost of the transfer. Adding all the different fees and marked up exchange rates reveals that SWIFT transfers can cost around £30 to £50, simply for moving your money from A to B! 😮

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SEPA Payments 🌍

SEPA stands for the Single Euro Payments Area and represents a new format for international transfers within Europe. The SEPA zone comprises 34 countries, including 28 EU member states alongside Iceland, Monaco, Switzerland, Liechtenstein, Norway and San Marino. It was created to simplify cross-border money transfers in Euros, the only currency SEPA supports. 💶

In many ways, a SEPA payment is similar to a domestic transfer. In essence, payment service provider that support SEPA transfers either have direct relationships established or a network of intermediary payment service providers, thus allowing transfers to run across country borders.

Let’s revisit our previous example and assume that John is sending Alice €20, and that both payment service providers are part of SEPA. If the two payment service providers have commercial accounts held with one another, then the flow of money is the same as our first example in this post:

1. John’s payment service provider (Provider 1) will debit John’s personal account by €20. ➖
2. John’s payment service provider will credit Provider 2’s commercial account held with payment service provider 1 by €20. ➕
3. Alice’s payment service provider (Provider 2) will credit her personal account by €20. ➕

If they do not have an established relationship, the transfer will pass through a central account in Europe, let's just call it the European Central Payment Service for the sake of our example. In a very simplified way, this is how the money would flow:

1. John’s payment service provider will debit his account by €20 ➖
2. John’s payment service provider will credit their commercial account held with the European Central Payment Service (intermediary provider) by €20 ➕
3. The ECB will then credit Alice’s payment service provider by €20 ➕
4. Alice’s payment service provider will credit her account by €20 ➕

There is actually more that goes on behind the scenes, but for the purpose of this article, we won’t go into more details.

More important than how it works, is what SEPA transfers have to offer:

• Allows you to make cross border payments in Euros ✔️
• Transfers usually take 1 day to reach the recipient's account ✔️
• Transfers are generally free for both the sender and receiver ✔️

Some payment service providers will still charge a fee for making or receiving a SEPA transfer. Please check with your payment service provider before making a SEPA transfer to or from your Revolut account.

Ok, but where does Revolut fit in?

Revolut supports both SWIFT and SEPA transfers to or from your Revolut account. When you send money from Revolut to any account, the system automatically selects the best type of transfer for you. 💪

This means that if you’re making a transfer in Euros to a payment service provider located in Europe, the payment will most likely be a SEPA transfer. But if you’re sending money to another payment service provider in Singapore, for example, Revolut will make a SWIFT transfer since SEPA isn’t supported there. 🗺

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This automatic transfer selection ensures that your money reaches the recipient’s account as soon as possible. It also give you the peace of mind knowing that you never have to pay excessive fees or marked up exchange rates - #ProblemSolved 😎

But where Revolut reigns supreme is in our ability to offer instant internal transfers in any of the supported currencies, virtually anywhere in the world. Using the app, you can instantly send money to any other Revolut user in the world. Yes, you heard that right - Revolut transfers are instant and completely free, from the moment you hit 'Send', because our technology takes away the need to go through clunky and oudated payment systems such as SWIFT or SEPA 💪

Read more:

• How to Calculate the Exchange Rate
• What is a SWIFT Code?
• What is Remittance?