![]() ![]() 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). Bank 2 will then credit Alice’s personal account by £19.60.Bank X deducts a small fee for acting as an intermediary (let’s say £0.40 ➖) from the amount being transferred, and credits Bank 2’s commercial account by £19.60.Bank 1 will ask Bank X (the intermediary bank) to debit their commercial account (Bank 1’s) by £20 ➖, and credit Bank 2’s commercial account.Bank 1 will debit John’s personal account by £20.Once the intermediary is found, the funds can be processed at the end of the day (or based on some other predetermined schedule): But since neither banks hold accounts with one another, SWIFT will find an intermediary where both banks have commercial accounts - let’s call it Bank X. So, John’s bank (Bank 1) will once again send a SWIFT message to Alice’s bank (Bank 2), informing them of the incoming transfer. If the banks don’t have a direct relationship, one or more intermediary banks must be found to facilitate the transfer. Since the banks 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. Alice’s bank (Lloyds) will credit her personal bank account by £20.John’s bank will credit Lloyds’ commercial bank account held with Barclays by £20.John’s bank (Barclays) will debit John’s personal bank account by £20.Once the message is received (usually within minutes), the funds can be transferred directly between the two banks: John’s bank (Barclays UK) will send a SWIFT message to Alice’s bank (Lloyds Singapore), informing them of the transfer. If both banks have a direct relationship with each other, or in other words, if Bank 1 has a commercial account with Bank 2 and viceversa, the transaction would look like this: ![]() Depending on the bank’s relationship, there are two ways in which this transfer can take place: Banks have a direct relationship ❤️ Let’s assume John wants to send £20 from his bank account in the UK to Alice’s account held with a bank in Singapore. What’s more, the complex nature of these transfers usually incur a fee which nearly always gets passed on to consumers. 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. SWIFT does not actually send money, it simply sends messages between the banks. This ultimately allows money to be sent from one bank to another, virtually anywhere in the world and in many different currencies.īut this system is far from perfect. The SWIFT payment system enables these institutions to securely send and receive information on financial transactions in a standardized way. The two most common ways to transfer money internationally are known as a SWIFT and a SEPA transfer. The principle of correspondent banking still applies, which means that the two banks need to have an established relationship in order to facilitate the transfer. International money transfers are basically inter-bank transfers, only in this case, the two banks happen to be in different countries, which makes things slightly more complex. 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. We have already explained how money transfers work between two accounts held with the same bank (intra-bank transfers), as well as transfers between two different banks (inter-bank transfers). ![]() Surprisingly, this still holds true today, but have you ever wondered why? 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. If you are wondering how international money transfers work, you’re in the right place. ![]()
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