In 1844, the first telegraph message was sent between Washington DC and Baltimore in the USA, via a specially constructed experimental cable line. 

In 1854 work began on the first undersea telegraph cable, and the first transatlantic communication was sent four years later, on 16 August 1858. The cable failed after just three weeks and a new project began to replace it, but international communication had been born and the world has never been the same since.

As technology swept the world over the coming years (and indeed continues to do so to this day and will into the future), it became apparent that there needed to be common standards for the world to follow so that there was less chaos. Airports started to be assigned codes in the 1930’s so that planes (and luggage!) went to the correct place. In the 1960’s country telephone codes were created so that calls could go to the right location, without the requirement to have totally unique (and therefore ridiculously long) telephone numbers all over the world to prevent duplication. 

And banking was no different. Up until the 1970’s money was transferred internationally by means of telex, and the instructions had to be literally written out in a free message format. This of course was slow, not particularly secure and had to be interpreted by the receiver, who usually spoke a different language. There was obviously a huge margin for human error on both the sending and receiving ends of the transaction.

A way was needed to make sure that when moving money from one country to another there were no mistakes and funds got to the correct place. So in 1973, 239 banks from 15 different countries came together to formulate a standard for cross border payments. They formed the Society for Worldwide Interbank Financial Telecommunication, or SWIFT as it became known. The core components of the original SWIFT service were a messaging platform, a computer system to validate and route messages, and a set of standards for messaging. 

SWIFT went live in 1977 and was extremely successful. Within 12 months of beginning operations, over 10 million messages were processed. 

By 2014 more than 200 countries and territories had been added to the SWIFT system, and in that same year a staggering 5.6 billion plus messages were processed. And SWIFT continues to grow with new services into the 2020’s.

It’s not just banks that use SWIFT. The system is also used by other entities, such as:

  • Foreign exchange brokers
  • Exchanges
  • Depositories
  • Securities dealers
  • Clearing houses
  • Asset management companies
  • Brokerage institutes and trading houses
  • Corporate businesses
  • Treasury market service providers

SWIFT works by assigning each member institution a unique ID code that identifies the bank name, country, city or region and sometimes the branch. The codes consist of:

  1. A four letter bank code
  2. A two letter country code
  3. A two letter location code
  4. A three letter branch code – this can be optional. If the last 3 digits are XXX it means the code is not assigned.

For example, the SWIFT code ABSAZAJJCBF can be broken down as follows:


ZA = South Africa

JJ = The location in South Africa

CBF = The branch code of a particular ABSA bank in South Africa

SWIFT codes refer to a bank only, and do not include an individual account number. There is a different international payment system, namely IBAN (International Banking Account Number) that includes this information, and we will discuss it in a different article. 

So how do you use SWIFT to send cross border payments? Firstly both the sending and receiving organizations need to be on the SWIFT network. As a sender you would give your bank instructions on how much to send and provide the SWIFT code and the beneficiaries account number. 

If you provide the incorrect SWIFT code the funds disappear into the banking network, and it could take anything from a couple of hours to a few weeks for the funds to return to your account. Always inform the recipient that you are making a SWIFT transfer and if they do not receive the funds in a few days you should both query the transfer.

And what will you pay for a SWIFT transfer? Members of SWIFT pay joining fees plus annual fees to the organization. SWIFT also charges per message. And of course that means members need to get money back from their users. Banks and other institutions will charge fees for both sending a SWIFT transfer and for processing transferred funds into the account of a beneficiary. How much they will charge you will vary, depending on several criteria, and will include currency conversion costs and administration fees.  

Another consideration is the exchange rate. Banks have both selling and buying exchange rates, and they are not the same from country to country, or bank to bank. You should always expect some variation in what the beneficiary receives as opposed to what you sent. 

Although SWIFT is not the only option for international payments, it is the most dominant player in the global market. 

At Baer’s Crest we have decades of experience in international commerce, and always have great advice for our clients who need to transact internationally. Talk to us about your international financial requirements.