Money transfer services are a vital cog in the larger economic system. SEPA and SWIFT are the two most common money transfer services in the UK and the larger Europe. Understanding what they offer and their differences can help you choose which one to use for more efficient and affordable services.
Although both are largely similar, they still have differences. They also have different capacities, which are crucial to know when sending an international wire transfer.
What is SWIFT?
SWIFT stands for Society for Worldwide Interbank Financial Telecommunications. It is the gold standard and the leader in facilitating inter-currency wire transfers. SWIFT has been around for quite some time. It was first introduced in the early 1970s. Almost all the countries in the world are connected to the SWIFT network. This allows local banks and other financial institutions to send and receive SWIFT transfers.
Basically, SWIFT provides a secure and safe means of sending money abroad. You can pay someone overseas using SWIFT, which is not too different from a domestic payment.
You can make SWIFT payments in any currency, and the money sent can be converted into any currency. You can also choose for the money to be converted upon arrival or before it is sent. SWIFT payments take up to four working days, and the transfer fees differ depending on your chosen bank. With SWIFT, both the sender and recipient may be charged fees for a SWIFT transfer.
Where is SWIFT Used?
Banks are the majority stakeholders of the SWIFT network. But other businesses also have a role, like money and security broker-dealers.
Only a small percentage of the world’s banks and financial institutions don’t use SWIFT. That means you can send money to almost any part of the world as long as the local banks are a part of the SWIFT network.
Time Taken For SWIFT International Cash Transfers
The time taken to complete a SWIFT transfer depends on the bank you select and its specific policies. Like other wire transfers, SWIFT transactions are only processed on business days if they’re requested before the bank’s halt time.
The bring-to-a-halt time varies depending on the bank. But if you create the transfer request on a business day before the bank’s halt time, it can be processed on the same day. Otherwise, the request is processed the subsequent business day.
The funds for the transfer and any transfer fees are typically subtracted from your account when the wire transfer is processed.
However, because your bank processes the wire transfer request on the same business day doesn’t mean it’ll arrive in the recipient’s checking account the same day. The average time to complete a wire transfer is 1-5 days. But there are factors which can add or reduce time to your transfer.
How Does SWIFT Work?
The original idea behind SWIFT was to create a way for banks to communicate faster and more securely when processing international payments. Therefore, SWIFT is basically a messenger between banks. Its role is to channel messages on payment instructions from the issuing bank to remitting bank.
For this work, the banks must have opened accounts with each other to execute SWIFT transactions.
Once you request a bank to send money or make a payment, you’re awarded a BIC number that is specific to that transaction. You will also need to know the IBAN of the recipient along with their basic details, like full names.
What is SEPA?
SEPA is short for Single Europe Payments Area. It’s similar to SWIFT but only works for banking and transfers within Europe.
SEPA has only been around since the late 2000s and can only be made in euros, unlike SWIFT, which operates in many currencies. Currently, 28 countries in the Eurozone, including San Marino, Monaco and four members of the European Free Trade Association, are members of SEPA.
To make a payment via SEPA, you only need a euro account and the IBAN of the recipient. Unlike SWIFT, you won’t need the BIC.
SEPA payments take a shorter time than SWIFT transfers. A regular SEPA payment may take up to two days to arrive.
However, a new scheme known as SEPA Instant Payment or SCT Inst processes the transfers within 10 seconds.
Because of the geographical restrictions, SEPA payments are cheaper than SWIFT. Also, the transactions are required to be made under the same terms as the domestic payment, so there are little to no fees attached to making the transfer which is quite different to the substantial fees attached to SWIFT payments.
Time taken for SEPA Transfers
There are two types of SEPA transfers with varying times taken to complete the transfer:
SEPA Instant credit transfer
SEPA Instant Credit Transfer (SCT Inst), also referred to as SEPA Instant Payment, provides fast crediting of the recipient. In most cases, the transaction is completed in 10 seconds and 20 seconds in exceptional circumstances.
SEPA Credit Transfer
SCT allows for the transfer of funds from one checking account to another. However, the SEPA clearing rules require that payments be created before the cut-off purpose on an opening day is completed within one business day.
How Does SEPA Work?
SEPA payments are handled by banks or payment processors. Each service’s requirements might differ slightly, but the baseline of the procedure for sending money with SEPA includes the following:
- Sign into your bank account to initiate the SEPA payment.
- Verify your identity, which sometimes includes completing an ID check before making a SEPA transfer. It ensures your provider complies with the KYC and anti-money laundering laws.
- Agree to an exchange rate if you send the money in a different currency. You don’t need to convert the funds if your balance is in euros.
- Enter the IBAN of the individual receiving the SEPA payment. You might have to enter other basic details as well.
- After entering the necessary details, the money will be directed to its destination. The changes in balance will reflect in both the sender’s and recipient’s accounts.
While you might send money to countries eligible for SEPA using SWIFT, you’re likely to incur more costs. Therefore, SWIFT is best suited for global payments, while SEPA is best for countries in the Eurozone that are members of SEPA. Also, with SEPA, the payment gets to the recipient sooner than with SWIFT.
