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What is SWIFT Payment and What Does It Mean for International Payroll?

One of the most popular methods for global money transfers, SWIFT is a trusted way for companies to send payments to their global team members. Learn how SWIFT payments work, the challenges they can come with, and how to overcome them.

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Pilot Team

Published on January 19, 2022

Over 11,000 institutions sent 9.5 billion payments across 200 countries and territories globally in 2020 using the Society for Worldwide Interbank Financial Telecommunications system (SWIFT), making it one of the most prominent tools for cross-border payments. That’s a lot of money being wired back and forth — and a lot of international wire transfer fees adding to companies’ payroll burden.So, what is SWIFT? It’s a trusted, popular method for global money transfers, and it can be a good solution for managing international payroll. But companies need to fully understand how SWIFT works and the challenges, as well as how to overcome them, so they can pay their international contractors and employees in full and on time.

What Is SWIFT?

SWIFT is essentially a messaging network that banks, companies, and other organizations use to facilitate financial transactions around the world. SWIFT doesn’t send money directly; instead, it sends a payment order with instructions for transferring money between banks. The transfer instructions are conveyed through a standardized message system using three-digit codes, and they’re sent across the network using the receiving bank’s unique SWIFT code. Once the payment order is received, the banks then settle the transfer between their accounts.The biggest benefit to SWIFT is that it provides a way for organizations to quickly and securely transfer funds, particularly internationally. SWIFT was formed in 1973 and revolutionized the way cross-border payments were made. Its standardized system of codes replaced the manual, error-prone Telex system that was then in wide use. SWIFT remains one of the most trustworthy, efficient methods for cross-border payments today: according to The Economist, analysts believe that about 90% of the money transferred across borders in the past year went through SWIFT.SWIFT uses data encryption for security and provides visibility for banks so that they can track payments in real-time and solve issues efficiently. For payments made through SWIFT gpi (Global Payments Innovation), “nearly 50% … are credited to end beneficiaries within 30 minutes, 40% in under 5 minutes, and almost 100% of gpi payments are credited within 24 hours,” according to SWIFT.For companies who need to manage international payroll, the infrastructure is all there through SWIFT. They can easily trace payment transfers to their contractors, and they can make payments to any number of parties all over the globe, thanks to the reach of SWIFT’s network. SWIFT also uses a standardized messaging system to send payment orders, which helps ensure accuracy.SWIFT can send messages, using codes, for a variety of actions, including security transactions and trade transactions. But the bulk of SWIFT “traffic” (messages sent across the FIN) are related to payments. Out of more than 41 million messages per day in November 2021, nearly 19 million were payments. It’s a trusted, reliable method for sending payments globally — as shown by the sheer volume of payment messages sent across the network.

How Do SWIFT Payments Work?

SWIFT payments work by using a system of standardized codes to send messages and instructions for financial transactions. There are two main types of codes used by SWIFT:
  • The financial institution’s code: Each institution on the SWIFT network also gets its own SWIFT code, which is a type of Business Identification Code (BIC). The code is between eight and 11 characters long, and the digits signify the institution, the country, the location, and the branch (if applicable).
  • SWIFT message type: This is a three-digit code that conveys the instructions for the financial transaction between institutions. For example, MT 103 is the code for “Single Customer Credit Transfer” and provides instructions for a fund transfer.
To pay your international contractors or employees, you’ll need the usual info from your employees (name, address, bank account number) plus the receiving institution’s unique SWIFT code. Your bank would send instructions for a payment to your employee’s bank. Once the payment code is received, the money clears and is deposited into your employee’s bank account.Let’s say you’re sending a payment to your contractor, Anna, in Germany. Your bank’s own SWIFT code is PNCCUS3C. “PNCC” is the institution code for PNC, “US” is the country code, and “3C” is the location code. The receiving bank — where Anna’s account is held — has a SWIFT code of BEVODEBBBBK. “BEVO” is the institution code for Berliner Volksbank, “DE” is the country code for Germany, “BB” is the location code, and “BBK” is the code for Anna’s particular branch.Your bank will send a message type to Anna’s bank indicating a payment. Anna’s bank will send back a message confirming it, the funds will clear, and the payment will be deposited into her account.Your bank may use an intermediary through the SWIFT network, if they don’t already have a relationship with your employee’s bank, in order to get the payment through. In this case, several banks would communicate with each other using SWIFT messages to transfer the funds, and this can introduce higher fees or even delays.

What Are the Common Challenges With SWIFT Payments?

The SWIFT payment method presents a few challenges for companies who are using it to submit their international payroll.

Fees can quickly add up.

Banks charge wire transfer fees — particularly for international transfers — as well as currency exchange fees. Depending on the size of your payroll and where your employees are located, these fees can quickly add up.According to NerdWallet, the median wire transfer fee for outgoing international payments is $49. Depending on the size of your international payroll and how often your company processes payroll, those fees will multiply, creating additional costs.The chances are good that your SWIFT payment will need to go through an intermediate bank, especially for remote teams, since your bank may not have relationships with those of your international employees. In that case, fees may apply for each institution, which increases the impact on your payroll burden.

It’s hard to get visibility into payments.

Delays and fees on the receiving end both make it difficult to plan when your international employees will receive payment and know exactly how much they’ll be receiving.If the employee’s bank charges fees for international wire transfers, those will get deducted from their payment. Currency exchange rates also may not be in their favor. In the U.S., banks typically offer exchange rates that are about 2–4% worse than the base exchange rate, according to Exiap. That’s less money in your employees’ hands once their payments are processed.This can obviously create stress for your employees, leading to a negative employee experience and harming your remote work culture. You might even lose staff members completely if it costs them money just to be paid by your company. Plus, it creates more work for your team to manage payroll properly, answer questions, and sort out issues.

Payment delays can lead to compliance risks.

When payments are delayed and your employees don’t receive them on time, you could be at risk of breaching your employment contracts.Going through intermediary banks can lead to delays, causing payments to take as long as five business days. Manual input errors can also lead to delays in processing while the errors are sorted out. Harry Newman, then-head of banking at SWIFT, told LSE Business Review that incorrect data inputs are one of the most common causes of delays in payment processing.

SWIFT Challenges Are Easy to Overcome — With the Right Payroll Tools

You need to be aware of fees and potential delays if you’re planning on manually managing your international payroll with SWIFT payments, so you can be sure they aren’t negatively impacting your employee experience. And if they are, there’s another method for making cross-border payments that you can use: a local bank transfer, or local payment.The process works similar to SWIFT, using a network of financial institutions to transfer funds internationally. Unlike SWIFT, though, the transfer is processed by a local bank and settled through a local payment system, such as the Single Euro Payments Area (SEPA). Local payments often have lower or no fees compared to SWIFT because they don’t add up from intermediaries. Payments are received faster, and the process is easier to manage and less prone to errors.

Legal Disclaimer:

The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.

Pilot offers the ability to make local payments in more than 70 countries, with no extra fees or markups. And, for countries where we don’t support local payments, we can help you effectively manage your international payroll by making SWIFT payments. We validate SWIFT codes, provide support, and track payments to make sure they’re posted to your contractors.You can automatically schedule payments and payment frequency for contractors in over 240 countries, simplifying the process for paying your international contractors.Learn more about how to reliably manage your international payroll through Pilot by scheduling a demo.

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From startups to large corporations, US companies of all sizes use Pilot for international payroll, benefits and compliance.

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