SWIFT vs Local Transfer

Key takeaways

• SWIFT transfers rely on a global network of financial infrastructures for global payments and settlements.
• SWIFT payments have better security and are more suitable for large transactions.
• Local transfers use a national network of bank accounts to facilitate transactions between payers and recipients.
• Local transfers are cheaper and faster, making them the better option for small transactions.

In 2022, SWIFT recorded an average of 44.8 million transactions per day, a 6.6% growth compared to the same period in the previous year. This international payment network has made it convenient for any business to quickly, accurately, and securely transfer funds across borders with just a few clicks.

Local transfers, on the other hand, have the advantage of fast execution and at scale, while remaining a low-cost solution. It’s quickly becoming the go-to method for international money transfers for businesses that make frequent and large transactions.

In this article, we’ve put SWIFT and local payments side by side so you can compare the two options and determine which is better.

What is SWIFT?

Founded in 1973, SWIFT, or Society for Worldwide Interbank Financial Telecommunication, is a messaging network that allows financial institutions to transmit information and instructions through a system of codes.

This method of telegraphic transfer (TT), also typically called a wire transfer, is an electronic global payment and settlement system (better known as the SWIFT International Payment Network) that facilitates electronic global payments and settlements. It is not a financial institution in that it does not hold or transfer any funds. Rather, it is simply the messenger between banks.

Today, SWIFT has over 11,000 member financial institutions across 200 countries, making it the largest and most streamlined method for international fund transfers.

How do SWIFT transfers work?

A SWIFT wire transfer is executed by the payer’s bank, debiting their account, routed through a series of intermediary banks in the SWIFT network and ends with the recipient’s bank crediting their account.

Behind the scenes, SWIFT functions as a messaging network in that financial institutions ‘communicate’ payment instructions between bank accounts. These ‘instructions’ come in the form of standardised codes, known as SWIFT codes, SWIFT IDs, or ISO 9362 codes. These codes, correspondingly, ensure the funds reach the right recipient’s account known as IBAN — International Bank Account Number.

SWIFT codes (also referred to as BIC codes, Business Identifier Code) contains 8 or 11 characters and is unique to each financial institution. It is made up of:

• The institution – e.g. DBSS for DBS Bank
• The country – e.g. SG for Singapore
• The city or location – e.g. JA for Jakarta
• [Optional] Branch code – Typically consists of three characters
  

In the case where the sender’s bank has a commercial relationship with the recipient’s bank, the money gets transferred instantly as soon as the recipient’s bank receives the SWIFT message.

However, if the two institutions do not have a direct relationship, the funds will first go to an intermediary bank (or more than one) in the SWIFT network, then only to its intended bank. And since SWIFT is most commonly used for cross-border payments, it often involves foreign currency exchanges (FX), which may incur an additional fee and a longer settlement period.

What are Local Transfers?

Local transfers are powered by Real Time Gross Settlement (RTGS) and local payment systems. This form of money transfer, which is referred to as remittance, routes the payment through a network of cross-border financial institutions and enables users to make a payment through local bank accounts.

Local bank transfers come in the form of ACH (Automated Clearing House network), Global ACH, or eCheck (the digital version of a paper cheque). However, the EFT (electronic fund transfer) process by which local bank transfer payments are made varies depending on regulatory requirements.

How do local transfers work?

During a local transfer, the sender has to first choose a money transfer service, such as Wallex or another electronic payment option. Then, the transfer service provider performs the FX conversion through its network (like the SEPA — Single Euro Payments Area — payment service) and sends the converted amount at a pre-agreed rate in the destination currency.

In layman's terms, the platform takes the payment request, locates a user who is simultaneously making a corresponding request in the destination country and credits the recipient’s bank account.

This process effectively removes the big banks from the equation and relies on individual bank accounts for the transfers. Consequently, it helps users avoid any unnecessary bank charges and unfavourable exchange rates often associated with international transfers while benefitting from high-speed transfers.

The differences between SWIFT and local transfers

In the realm of finance, everything is increasingly interconnected. While this is great for liquidity, it’s become harder to select a financial services provider that meets your needs. With that said, here are the advantages and compromises of SWIFT and local transfer.

Cost

Due to its wide network, SWIFT payments are often the go-to for international transactions. However, its system — one that involves routing funds through a network of intermediary banks (up to 3) — can lead to a notable increase in fees. Plus, the constant fluctuations in FX rates and the margins/markups involved make it difficult for any business to estimate the final costs, especially for large transactions.

On the other end, local transfers, which do not involve as many intermediaries for the funds to reach their final destination, will almost always be cheaper than SWIFT channels. Senders only need to pay a minimal fee for a transaction and recipients typically do not incur any cost — a more transparent fee structure in comparison to SWIFT.

Having said that, SWIFT’s network of over 11,000 institutions gives it the benefit of having an extensive reach. This is especially important for businesses that may need to make payments to countries that are not supported by local channels.

Speed

Here’s where it can get tricky. On SWIFT payments, the sender must provide certain information or documentation about the transaction. This is to comply with international Anti-Money Laundering (AML) standards and to protect institutions from illicit affairs. Examples of these documents are official invoices, beneficiary details, and the corresponding SWIFT codes.

Local payments, conversely, only require the recipient’s bank details and a reference number.

The complexity of SWIFT payments commonly results in slow settlement times, which can take up to 5 working days. On the contrary, local payments, with their simple approach, make it a more convenient transfer option that is, in most cases, instantaneous.

SWIFT vs Local Transfers: Details Required and Common Mistakes

Information needed for SWIFT:

1. Recipient information:

• Full name and address
• Account number and account type
  

2. Recipient’s bank information:

• Name and address
• Routing number
• SWIFT or BIC code
• IBAN (if applicable)
  

3. Currency

4. Transfer amount

5. Reason for transfer

6. SWIFT or BIC code

Information needed for Local Transfers:

1. Recipient information:

• Account holder name
• Account number
• SWIFT code
• Local bank account number
  

2. Recipient country’s local routing number if applicable (e.g. IFSC code in India, BSB code in Australia etc.)

Common errors with international transfers:

• Incorrect city or country names
• Incorrect (or the lack thereof) address
• Incorrect SWIFT or IBAN codes
• Mismatch in the account name and account number
  

Such errors can lead to processing delays or the wrong recipient receiving funds. Telegraphic transfers (TT) are irrevocable, so it is critical to provide the correct information from the get-go.

Selecting the right global payment provider

Despite their differences, both SWIFT and local transfers are secure and accessible global payment methods. As you’re searching for a global payment solution, make sure it aligns with the objective of your transaction in terms of fees, speed of transaction, intuitiveness of the platform, and customer service.