The global finance system is now more internationalised than ever. The rise of information technology in recent decades has enabled a thoroughly integrated banking system globally – especially for facilitating secure, standardised international payment solutions. There are several systems, but the current gold standard for cross-border payment is the Society for Worldwide Interbank Financial Telecommunication (Swift) system. What is it, and how does it work?

The Swift payment system

In 1973 the Swift system was established in Belgium to replace the slow, error-prone telex system that banks had previously relied on for cross-border communication. The primary objective was to provide a standardised messaging network for financial institutions worldwide. The protocol began operations in 1977 with 239 banks from 15 countries.

Its initial purpose was to facilitate secure, efficient communication for payment instructions and financial messages between banks. By the 1980s, Swift had expanded its reach, connecting financial institutions across continents. The system evolved to support a wide range of financial operations, including securities, treasury, and trade finance transactions.

Today, Swift connects more than 11,000 financial institutions across more than 200 territories. It plays a vital role in facilitating global trade, remittances, and financial settlements by standardising a format for financial messaging that enables institutions to correspond and trade more efficiently. It increases the safety and reliability of international payments and therefore reduces errors and fraud significantly.

Swift facilitates the transport of financial messages during cross-border transactions and subsequently guarantees that international payments are processed correctly, but no actual money is sent physically using the protocol. Banks communicate payment instructions and other financial information using their assigned Swift code.

Large corporations use Swift to make sure that cross-border transactions are cleared quickly and safely. Brokerage companies and securities dealers, among other non-banking entities, depend on Swift for financial communication inside their operations.

Despite its dominance, however, Swift is now facing challenges from newer, faster, less expensive systems like blockchain.

Cross-border transactions

According to a recent report from the multinational accounting company EY, the cross-border payments industry is poised for significant transformation as regulators and financial institutions push to modernise their systems. Global cross-border payment flows are growing at around 9% a year, having reached US$190.1 trillion in 2023. They are expected to hit US$290 trillion by 2030. Business-to-business transactions make up the largest share, at US$183.5 trillion. Despite the growth picture, the current system is dominated by correspondent banking networks like Swift, and it is seen as relatively costly and slow.

Swift facilitates cross-border payments in various ways, but a key strength is the reliability of its large network. Covering more than 200 regions, it ranks top in international money transfers, processing millions of transactions per day with minimal errors. However, the system has challenges relating to transaction processing time and costs.

Depending on the interbank relationship and the involvement of intermediary banks, a Swift payment process can take 1–5 business days. This is slower than some new payment schemes, like the Single Euro Payments Area in Europe, or domestic real-time payments. Swift transactions also involve several fees, including those levied by the sending bank, the intermediary bank, and the receiving bank. This makes Swift less practical for lower-value transactions.

The cross-border payment landscape

Innovation in banking technologies is driving many of the regulatory challenges in the global payment landscape. Blockchain, artificial intelligence, and cloud computing are introducing new ways to create and distribute financial information or make international transactions. Many central banks around the world are exploring the potential of central bank digital currencies (CBDCs), which raises further regulatory and security challenges.

As has been the case with Swift, collaboration between institutions, countries and regions will be crucial. Areas like standardisation and interoperability, security and system resilience will demand collaboration among financial institutions, technology providers, and regulators.

The future of international payments

CBDCs are being seen as a key innovation to bring faster, cheaper international money transfer solutions to market. The cross-border e-commerce sector is expected to almost double in the medium term, and banks and payment providers are already looking to integrate alternative payment methods like digital wallets and buy-now-pay-later options into e-commerce platforms.

Nedbank offers a comprehensive set of commercial business solutions, especially if your business deals with exports, imports and international transactions. We offer advice and solutions specifically to do with global payments for your business.

Nedbank clients can use our secure digital channels like the Money app, Nedbank Business Hub, or the Global Host-to-Host payments solution to submit or receive cross-border payments.

Contact your Nedbank relationship banker to help you with a solution that meets your needs.