Understanding the SWIFT System: How Global Payments Work—and Why Change Is Coming

If you import from China (or export to it), you’ve met SWIFT. It’s the backbone that lets banks talk to each other across borders. But SWIFT doesn’t move money; it moves messages—the instructions that tell banks what to do. That design made global trade possible… and also explains why cross-border wires can feel slow, pricey, and dated. Let’s break it down in plain English—and end with what’s changing.

Alice wants to transfer $100 from her US bank account to Bob's bank account in Australia

What SWIFT actually does (and doesn’t)

Think of SWIFT as a secure WhatsApp for banks. Your bank sends a standardized message to your supplier’s bank: “Credit this account with X.” SWIFT makes sure the message is formatted the same way everywhere, so it’s understood and processed reliably. But the actual money moves through pre-existing correspondent accounts between banks (those “Nostro/Vostro” ledgers they keep with each other). If your bank and the beneficiary bank aren’t directly connected, the payment hops through one or more intermediaries—each hop adds time and fees.

Bottom line: SWIFT = messaging; settlement = banks moving value via their accounts. That’s why a cross-border wire can look like a relay race instead of a sprint.

A quick history (why the world needed SWIFT)

Before SWIFT (1970s), banks relied on Telex—slow, manual, error-prone. A group of banks created SWIFT in 1973 to standardize and secure these communications, and the network went live in 1977. Today, more than 11,000 institutions in 200+ countries exchange financial messages over SWIFT.

SWIFT has modernized—SWIFT gpi brought end-to-end payment tracking and faster processing—and the network is migrating to the ISO 20022 data standard by November 2025 to carry richer, more structured information. Still, SWIFT sits on top of correspondent banking, so some legacy friction remains.

Who “controls” SWIFT?

SWIFT is a member-owned cooperative under Belgian law. Its lead overseer is the National Bank of Belgium, supported by the G-10 central banks. The focus of oversight is operational safety and financial-stability risk—not telling SWIFT who to pay. Still, the network follows applicable sanctions laws (EU/UN, etc.).

Geopolitics in one paragraph

Because SWIFT is everywhere, disconnecting banks becomes a powerful sanction. We saw this with Iran (2012) and Russia (2022), when selected banks were cut off, disrupting their international transactions. This reality fuels interest in alternatives (e.g., China’s CIPS). But CIPS isn’t a full replacement: most CIPS traffic still uses SWIFT messaging to communicate with global banks.

Why wires feel slow, costly, and outdated

Here’s the short version: multiple intermediaries + banking hours + compliance checks + FX markups.

Factor	Traditional SWIFT Wires	What that feels like when paying a supplier
Speed	Often 1–5 business days end-to-end, especially with intermediaries and time zones.	“Did the money land yet?”—Weekends/holidays slow things further.
Fees	Sending bank ($20–$50) + intermediaries ($10–$30 each) + receiving bank ($10–$20) + hidden FX markup.	You send $1,000; the supplier sees $970 after intermediary deductions.
Transparency	Historically poor tracking (better with gpi, but not universal).	Hard to pinpoint where a payment is stuck without a manual trace.
Availability	Usually banking hours only; no true 24/7 cross-border.	Friday afternoon wire? See you Monday/Tuesday.

Note: SWIFT gpi helps with tracking and speed when both banks are gpi-enabled—but the underlying chain and cut-off times still apply.

Practical implications of trading with China

1. Sanctions risk is real (even if indirect). If a counterparty or their bank becomes sanctioned, SWIFT rails can close overnight. Have backup routes (alternate banks, currencies, or payment providers). European Council+1

2. CIPS is growing but not a SWIFT killer—yet. It primarily settles RMB and still relies heavily on SWIFT messaging to talk to the outside world. For most LatAm–China flows today, SWIFT is still in the loop. CSIS

3. Data standards matter. As ISO 20022 becomes mandatory on cross-border payments in Nov 2025, expect cleaner remittance info and fewer manual repairs—good for reconciliation and audits. Swift

If you want a deeper dive into CIPS specifically, here’s my prior post: CIPS for Small Businesses—How China’s payment system can cut costs & boost efficiency.

So… what’s changing?

• Richer messages (ISO 20022): More structured data = fewer errors, better compliance, smoother straight-through processing. Swift

• Better tracking (SWIFT gpi): End-to-end status visibility when both banks participate. Swift

• Competing rails: Fintech networks (Airwallex, Wise, etc.) route funds locally in/out of each country to avoid correspondent chains—often same-day with lower FX spreads and fees. (Great for recurring supplier payments; do check coverage, limits, and compliance in your markets.)

  
  

Takeaways for Latin American entrepreneurs

• Expect friction on classic wires. Build transfer time and fees into your working-capital plan.

• Ask your bank about gpi + ISO 20022 readiness. It measurably improves speed, tracking, and data quality.

• Have alternatives ready. A second banking route, a fintech provider with local rails, and, where appropriate, an RMB option via Chinese partners can save you days and basis points.

• Stay geopolitical-aware. Sanctions can change payment routes overnight. Build resilience (multiple rails, currencies, and counterparties).

  
  

Final word

SWIFT isn’t going away. It’s modernizing—and still connects the world’s banks. But its messaging-plus-correspondent design means cross-border wires will never feel like instant local payments. The smart play is to understand SWIFT, leverage its upgrades, and mix in faster, cheaper rails where they fit your flow. That’s how you reduce cost, cut settlement risk, and keep shipments moving.

References & further reading

• SWIFT—Who we are (what SWIFT is and isn’t).

• SWIFT Oversight (NBB lead oversight with G-10 central banks).

• Investopedia—How the SWIFT System Works (history & context).

• SWIFT gpi (tracking and faster processing).

• ISO 20022 migration—deadline Nov 2025 (payments).

• Typical SWIFT fees/time (cost stack and markups).

  EU—Russia banks banned from SWIFT (2022) & SWIFT statement.

• SWIFT—Iran disconnection (2012).

• CSIS—Sanctions, SWIFT, and China’s CIPS (why CIPS isn’t a full replacement).