You may have heard of SWIFT and SEPA but don’t understand what they entail. These terms pop up a lot when handling banking activities. You’ll likely use at least one of them if you’re making an international wire transfer, so understanding both terms is essential.
SWIFT and SEPA are communication networks for international payments. Banks need a secure way to share information when customers send money internationally. SWIFT and SEPA are the networks that facilitate communication.
SEPA stands for Single Euro Payments Area. As the name suggests, it’s a communication network for bank transfers dominated in euros. Participating nations include the 27 member states of the European Union plus other economically allied states like Norway, Switzerland, and the United Kingdom.
SWIFT is an abbreviation for Society for Worldwide Interbank Financial Telecommunication. Unlike SEPA, which is limited to Europe, it facilitates communication between banks worldwide.
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SWIFT
SWIFT started in the 1970s in Brussels, the de facto capital of the European Union. It formed due to concerns about a single private entity controlling global financial flows. At that point, the First National City Bank (FNCB) of New York, now Citibank, oversaw the leading communication protocol for international transfers. SWIFT was the alternative to be controlled by a consortium of global banks.
The SWIFT network provides a secure and easy way of sending money abroad. Paying someone through it is not much different from a domestic transfer.
SWIFT assigns a unique Bank Identifier Code (BIC) to each bank, sometimes called a SWIFT code. To make a payment to a foreign bank account, you’ll need the BIC and the recipient’s International Bank Account Number (IBAN).
You can make a SWIFT payment in any currency and convert it to any currency. For example, you can send dollars to your friend in Mexico and have them receive the equivalent in pesos. Almost all banks and financial institutions across the globe use SWIFT, so you shouldn’t have a problem making payments.
A SWIFT transfer can take up to four working days to arrive, and the fees differ between different banks. Both the sender and recipient may pay fees to facilitate a SWIFT transfer.
SEPA
SEPA is much newer than SWIFT, as it started facilitating transfers in 2008. It was formed to improve the efficiency of cross-border payments between participating nations. SEPA works similarly to SWIFT, but you can only pay with euros.
To pay via SEPA, you need a euro account and the IBAN of the recipient. You don’t need any bank identification number. SEPA payments take up to two days to arrive, half of SWIFT’s processing time. Better off, banks have begun implementing SEPA Instant Credit Transfer (SCT), which enables transfers of up to 15,000 euros to settle in less than seconds.
Transactions on the SEPA network incur little-to-no fees. On the other hand, SWIFT transfers can incur charges of between 3% and 5% of the total amount sent.
SEPA makes it easy for people within the eurozone to transact with each other. For instance, you can work remotely in the UK for a Swiss company and use your local bank account to receive payments.
SWIFT vs. SEPA transfers
The best choice between a SWIFT or SEPA transfer depends on where you’re sending the money from and the recipient’s location. Both networks aim to make cross-border payments more effortless and faster.
If you want to send euros to a bank account domiciled in the EU, SEPA is the best choice because it’s faster and incurs lower fees. However, if you’re dealing with other currencies and sending money outside the eurozone, SWIFT is the best option.
Advantages of SWIFT and SEPA payments
SWIFT & SEPA payments have their respective benefits. Advantages of SEPA include;
- Simplified payment handling: You can use one account and card to make euro payments wherever you are in the eurozone. This simplicity is more beneficial for frequent travelers — you don’t have to go through banking hassles when moving between different countries.
- Reduced transaction costs: You can send or receive money within the eurozone with little-to-no transaction fees. Without SEPA, you’ll have to use an alternative network like SWIFT that requires higher transaction fees.
- Faster payments: Regular SEPA payments arrive within a day or two. If your bank supports the SEPA Instant Credit Transfer system, you can settle transactions in less than ten seconds.
- SEPA fosters competition between banks in the eurozone, compelling them to offer better services to customers.
Advantages of SWIFT include;
- Transparency: SWIFT payments make transparent how much money you’re sending, how it moves between banks and the fees involved. With this information, the sender and recipient can monitor the transaction and know how long it’ll take to settle.
- Consistency: Messages on the SWIFT network are structured the same way, so it’s easy to figure out information regardless of where you reside and what language you speak.
- Security: With cyber threats on the rise, SWIFT offers a secure way to make cross-border payments. The central banks overseeing the network, led by the National Bank of Belgium, invest hefty monetary and human resources into its security.
- Compliance: The SWIFT network complies with sanctions laws from all participating countries. So, you can be sure you won’t run afoul of such laws by transacting with the SWIFT network.
Disadvantages of SWIFT and SEPA payments
SEPA
SEPA is limited to 36 member states; Austria, Andorra, Belgium, Britain, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Republic of Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, Norway, Netherlands, Poland, Portugal, Romania, San Marino, Slovenia, Slovakia, Spain, Sweden, and Switzerland.
If you reside outside these countries, you can’t use the SEPA network even when sending euros. On the other hand, SWIFT is available in most countries, save for a few under sanctions like Iran and North Korea.
SWIFT
SWIFT transactions take a longer time to settle than SEPA transactions. A regular SWIFT transfer can take up to 3 or 4 days, while a typical SEPA transfer takes one or two days. Besides, there’s no SWIFT equivalent to the SEPA Instant Credit Transfer system that lets payments settle within seconds.
Summary
SWIFT and SEPA are the most common ways of sending cross-border payments. They both offer a secure and compliant way to move significant sums between different countries. Each network has its respective advantages and disadvantages, which we’ve shown you.
You should now be familiar with SWIFT and SEPA and how to use them to make cross-border payments.
