SWIFT is an acronym that is often bandied about in the world of financial transactions — but what exactly does it mean and how does it affect you?

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication.

It’s an organization that was founded in Brussels in 1973 to establish some common processes and standards for financial transactions. We’ve put together a short guide to answer the biggest question about the SWIFT network and how it works.

What is the SWIFT network?

Banks around the world needed a consistent, universal way to get money from one country to another. The SWIFT network became that answer.

SWIFT provides a secure network that allows more than 10,000 financial institutions in 212 different countries to send and receive information about financial transactions to each other. Before the SWIFT network was put in place, banks and financial institutions relied on a system called TELEX to make money transfers. TELEX was slow, and the system lacked the security necessary for a time when technology was making rapid progress.

Who uses the SWIFT network?

The majority of SWIFT system members are banks, but it’s also used by many other businesses:

money brokers and security broker dealers

clearing systems

corporates, non-bank financial institutions and more

How does the SWIFT system work?

On the consumer end, you can think of the SWIFT network a bit like travelling from one airport to another. It’s not always possible to take a direct flight. Which means you may need to travel from one city to another via several connecting flights. SWIFT works essentially the same way. Your money will travel from one country to another, but to do that there are often intermediary/correspondent banks involved.

The SWIFT network doesn’t actually transfer funds, but instead it sends payment orders between institutions’ accounts, using SWIFT codes. It was SWIFT that standardised IBAN (International Bank Account Numbers) and BIC (Bank Identifier Codes) formats. SWIFT owns and administers the BIC system, meaning that it can quickly identify a bank and send a payment there securely.

What does SWIFT mean for you?

As long as your bank is affiliated with SWIFT, then the network can be used to securely communicate a payment order and get your money from one place to another.

Although as a consumer, you should be aware of a few things.

Fees are often levied by correspondent and recipient banks

If your SWIFT transfer involves 2 currencies, banks often apply poor exchange rates and pocket the difference

SWIFT transfers can take up to 5 working days in some instances

If you’re sending money through SWIFT, it can be quite pricey, especially for smaller amounts of money. And, as noted, if your SWIFT transaction will need to go through intermediary banks, each of them normally will levy their own fee. Though most banks will give you the ability to choose whether you, the recipient, or a combination of both foot the bill for these additional fees, the costs can still add up.

On top of that, if your money will need to be exchanged for another currency, banks can add their own spread (profit) to the rate they offer you. A further cost.

If you’re concerned about those fees adding up, you may consider using an alternative like TransferWise over your bank for your international money transfers. TransferWise’s smart new technology actually skips those hefty fees by sending your money through a series of local bank transfers all over the world. And you’ll get the real exchange rate — the one you find on Google — taking the guesswork out of calculating that extra cost.

TransferWise does use the SWIFT network for sending money to South Africa, Japan, and US dollars to countries around the world. But TransferWise works to reduce those costly intermediary fees. And makes it clear when there may be fees to you. Upfront. So there aren’t any nasty surprises.

SWIFT is just one of the organizations and systems that have changed modern banking for ever. And it’s worth it to do your homework to make sure you know what you’re getting.