SWIFT Moves Messages, Not Money

The name everyone knows is SWIFT, but SWIFT doesn’t move money. It is a secure messaging network that banks use to tell each other what to pay. The money itself moves between accounts that banks hold with each other.

How an International Transfer Works

Your banksends the paymentCorrespondent bankholds foreign currencyRecipient’s bankabroadRecipientgets the moneySWIFT carries the messages. The money moves between accounts that banks hold with each other.Each bank in the chain can take a fee, and the currency is converted somewhere along the way.
Sending money abroad usually means passing through at least one correspondent bank.
  1. You ask your bank to send money abroad, with the recipient’s bank details (for example a SWIFT/BIC code and account number or IBAN).
  2. Most banks don’t hold accounts with every bank in the world, so your bank uses a correspondent bank: a large bank where it keeps an account in the foreign currency, such as US dollars in New York.
  3. Your bank sends a SWIFT message, and the correspondent bank debits your bank’s account there and pays on, sometimes through another correspondent.
  4. The recipient’s bank receives the money and credits the recipient.

Banks call these accounts nostro (“ours, held with you”) and vostro (“yours, held with us”). It is the same pattern as the omnibus accounts brokers hold for shares.

Why Is It Slow and Expensive?

  • Several banks, several fees. Your bank, each correspondent and the recipient’s bank can each take a cut, so the recipient can get less than you expected.
  • Currency conversion. The exchange rate you get usually includes a margin over the market rate. This is often the biggest hidden cost.
  • Checks at every step. Anti-money-laundering and sanctions screening, plus time zones and bank holidays, can stretch a transfer to a few working days.

Sending and Receiving Money in India

  • Receiving: India receives more money from abroad than any other country, mostly from people working overseas. Money arrives into your bank account in rupees, converted at the bank’s rate.
  • Sending: residents can send money abroad under the RBI’s Liberalised Remittance Scheme (LRS), up to a yearly limit, for purposes like education, travel and family support. Tax is collected at source above certain amounts.

The Faster Alternatives

  • Money transfer services that keep money in both countries: you pay locally, and they pay the recipient from their account in the other country, so the money never crosses the border per payment.
  • UPI links with other countries, such as Singapore’s PayNow, for instant small transfers.
  • Stablecoins, which settle in minutes at any hour: see What Keeps a Stablecoin at $1?
  • Better messages: SWIFT has moved payments to the ISO 20022 format, which carries richer data and helps payments clear checks faster.

This article explains how the systems work. It is not financial advice, and limits, fees and rules change: check the current ones with RBI, your bank or your transfer provider.