What Are SWIFT and SEPA International Money Transfers?

March 29, 2024

International payments are not always necessary when doing business, but if your customers, suppliers, or business partners are located all around the world, you will likely need to perform international banking operations. When making such payments, you may encounter terms such as SEPA, SWIFT transfers, and BIC.

It is important to understand various overseas remittance services before opening a bank account because the type of account in a financial institution directly affects the geography of possible incoming and outgoing transfers, as well as the currencies involved. This article compares the SEPA vs SWIFT systems and explains their features.

SWIFT Transfers Explained

The Society for Worldwide Interbank Financial Telecommunication, otherwise known as SWIFT, is a system that enables cross-border transfers with over 11,000 financial institutions in over 200 countries and regions. Founded in 1973, SWIFT provided banks with a much more efficient alternative global payment system than the previously used TELEX. Today, SWIFT transfers facilitate global banking communications and are a cornerstone of international finance.

So, what is a SWIFT transfer? A SWIFT money transfer is an electronic international transfer made through the SWIFT network. It involves sending a message with payment instructions from the payer or the sending bank to the receiving bank. The process often involves multiple intermediary banks.

Understanding SWIFT payments is essential for business owners who wish to participate in the financial communication system, particularly in the context of international funds transfers and related processes.

Read more: A Comprehensive Guide to the SWIFT Network

How SWIFT Payments Work 

Let’s break down the process of SWIFT payments from initiation to completion. During a SWIFT transaction process, you need to: 

  1. Enter the recipient’s bank details and a SWIFT/BIC code
  2. Determine the amount and currency of the payment
  3. Specify the purpose of payment
  4. Ensure the availability of sufficient funds
  5. Determine the fee responsibility codes (“OUR,” “BEN,” or “SHA”)
  6. Initiate the transaction through your bank 
  7. Transfer the funds and wait for confirmation

This transfer instruction via SWIFT is simple because it’s very similar to the domestic transactions that you make regularly as a business. SWIFT global transfers usually take one to five working days to process but may be delayed due to national holidays, incorrect information, involvement of intermediary banks, or system failures.

The SWIFT system ensures secure funds transfers between institutions and guarantees the reliable transmission of sensitive financial information. One of the key aspects of SWIFT’s security measures is encryption and transaction security protocols. By using standardised formats and trusted communication channels, SWIFT minimises the risk of unauthorised access to transaction data. In addition, SWIFT meets compliance requirements for financial crime legislation such as Know Your Customer and Anti-Money Laundering.

What Is the SWIFT/BIC Code?

A SWIFT/BIC code is an international bank code used to identify a specific bank and its branch when making a financial transfer. The code consists of 8 or 11 characters, including both numbers and letters. Banks use these codes to send and receive money quickly and securely, as well as for other types of transactions, such as processing payments and setting up direct debits. 

SEPA Payments Explained

SEPA is one of the most popular cross-border payment solutions. International bank payments are usually associated with high fees, and SEPA is designed to save users from most of the inconvenience.

SEPA allows electronic payments in euros in the territory of 36 SEPA member states, mainly EU countries. There are only two conditions: your country must be a member of SEPA, and SEPA must be integrated into both the financial institutions of the sender and the recipient. Moreover, you don’t need a specific SEPA bank account.

The Single Euro Payments Area mechanism is similar to that of the SWIFT network. The system supports cashless payments between countries, allowing for direct debit, instant card transfers, and credit transfers. It requires all bank accounts to be identified by an international bank account number (IBAN), similar to a bank identifier code (BIC). Unlike SWIFT transfers, all SEPA transactions are in euros, so you don’t have to check foreign exchange rates to make the correct payment.

Read more: Payrow Introduces an Integrated IBAN Validation Tool

How SEPA Payments Work

Now, let’s look at the step-by-step guide on the processing of SEPA payments. To use the SEPA financial messaging service, you need to:

  1. Ensure that the setting for “Automatic SEPA” is ticked
  2. Enter the IBAN (instead of the BIC)
  3. Determine the payment amount 
  4. Ensure you have adequate funds
  5. Initiate the transaction
  6. Wait for confirmation

It takes several working days to confirm if the SEPA payment has succeeded or failed. The process may differ slightly depending on the scheme you use. There are four main SEPA payment schemes in Europe: SEPA Credit Transfer Scheme, SEPA Instant Credit Transfer Scheme, SEPA Direct Credit Core Scheme, and SEPA Direct Debit Business-to-Business Scheme.

Any business that uses SEPA has to adhere to the ISO 20022 standard. Both payment service providers (PSPs) and clearing and settlement mechanisms (CSMs) exchange payment data using ISO 20022 messages. This increases security and ensures proper payment order verification. The SEPA system also ensures secure funds transfers because only authorised payments are processed.

Comparing SEPA and SWIFT

In this section, we’ll provide an analytical comparison of SEPA vs SWIFT. Let’s see how the two payment systems differ.

Purpose: SEPA facilitates transactions within the Eurozone and some other European countries, while SWIFT enables cross-border payments around the world.

Availability: SEPA is used in 36 European countries. Swift is used in over 200 countries.

Currency: SEPA transfers are limited to euro transactions, and SWIFT allows transfers in different currencies.

Standards: SEPA meets Eurozone payment standards, while SWIFT meets global transaction and payment standards.

Requirements: To make SEPA transactions, you only need a euro account and the recipient’s IBAN, while a SWIFT money transfer requires a lot of recipient information, including BIC and bank details.

Read more: Abbreviations in Financial Transfers Explained

Practical Insights: SWIFT vs SEPA Differences

One of the most important factors when it comes to the practical use of SEPA and SWIFT is the differences in transaction speed. SEPA payments are fast, normal transfers take up to two days, and instant transfers take ten seconds. SWIFT payments take up to five working days if not delayed due to holidays.

Another factor businesses commonly pay attention to is cost. SEPA transactions are considered to be more cost-effective, often with little to no overseas transaction fees attached. Fees for SWIFT transfers vary and may be charged to both the sender and the recipient (you have to determine a fee responsibility code).

How to Choose Between SWIFT and SEPA

In general terms, SEPA is ideal for fast and low-cost euro transactions within Europe, while SWIFT is preferred for cross-border payments using different currencies on a global scale. However, the choice of SWIFT or SEPA depends on the specifics of the transaction, currency, speed, and geographical coverage. It could be that neither option is right for your business, and you should look for a suitable alternative, such as a FinTech company that provides European payment integration services.

Streamlining Cross-Border Transfers with Payrow Services

The Payrow platform could be your reliable assistant in making international business payments. Users can make UK and global business payments and money transfers without complications and hidden fees. With subaccounts in GBP or EUR, they can make international transfers and SEPA payments. Payrow provides an opportunity to get detailed information on payments and invoices and save transaction history for financial management.

Payrow also offers features such as automatic invoicing, transaction scheduling, payment automation, and expense control. We ensure that transactions are safe by using high-security standards like PIN, Touch/Face ID, two-factor authentication, and fraud prevention measures.

Using Payrow, SMEs, HoReCa businesses, and freelancers can simplify cross-border payments, automate routine tasks, and manage money efficiently. Enjoy fast and secure international payments with Payrow.

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What is a SWIFT transfer, and how does it secure international transactions?

SWIFT enables cross-border transfers within 200+ countries and regions and facilitates global banking communications. The SWIFT payment gateway is typically encrypted and secure, as the SWIFT network must comply with regulations in cross-border payments.

How do SEPA payments simplify money transfers within Europe?

The SEPA system offers optimal efficiency and cost in money transfers in the territory of 36 SEPA member states, mainly within the Eurozone. SEPA payments are made in euros. The system meets high-security standards and encrypts transactions to make them safe.

What are the key SWIFT vs SEPA differences for businesses?

SEPA enables transactions within Europe, while SWIFT allows payments worldwide. SEPA transfers are limited to transactions in euros, while SWIFT allows transfers in different currencies. Payments via SEPA are made quickly — from ten seconds to two days, while SWIFT payments can take up to five business days.