How Can You Make Your Business’s International Payments SWIFT and Cheap?

How Can You Make Your Business’s International Payments SWIFT and Cheap

Here is how you can save your business from hidden transaction costs!

Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is a secure messaging system between banks across international borders. It is the principal mechanism for facilitating international trade. SWIFT has received a lot of attention recently because, in February, the United States and several European countries, took the decision to ban select Russian banks from SWIFT. This decision was taken as a response to Russia’s continued military action on Ukraine. 

The SWIFT system is used by 11,000 banks across 200 countries. With SWIFT being a crucial part of cross-border banking, it is crucial that budding entrepreneurs become well-versed in how the system works. Let’s try to understand SWIFT, what it means for businesses and how international payments can be simplified. 

SWIFT explained

SWIFT was founded in Belgium in 1973 and is overseen by the National Bank of Belgium. The easiest way of understanding SWIFT is by likening it to Gmail for banks. It does not directly transfer funds between banks but rather simplifies the process of communication between banks. Banks use SWIFT to send each other instructions on how to process transactions. This helps banks process high volumes of transactions at a quick pace. As of 2021, SWIFT has transmitted 42 million messages every day. 

The system assigns each financial institution a unique identifier code of eight or eleven characters. This code has several names, such as bank identifier code (BIC), SWIFT code, SWIFT ID or ISO 9362 code. SWIFT allows for real-time instruction matching for forex (foreign exchange) transactions. If you run a business with employees abroad or have buyers/suppliers abroad, SWIFT will help you pay salaries and transfer funds in a secure and timely manner. 

Hidden costs of international payments

It might sound like a great idea to hire people from a different country. It’ll increase the talent pool you can hire from and, in certain countries, it could also mean hiring a cheaper workforce. However, paying said employees can be a huge obstacle.

As of 2019, bank transfers (facilitated by the SWIFT system) can charge you anywhere between US$25 to US$65. While large transfers sometimes have no fees, the small business owner who was hoping to save from hiring internationally gets buried under these fees. Not only does your business have to bear the cost, but your employees or collaborators also have to pay a fee of US$10 to US$25 upon receiving payment.

Typically, a transaction takes 3 to 5 days to process. Banks use this additional time to check the legitimacy of the transaction to protect themselves from money laundering. If your business needs to urgently pay a supplier abroad, then it would cost you an additional 10% on top of your additional amount to make the payment happen on the same day. 

The bank would also charge you a certain exchange rate on international transactions as well as about US$50 more if you want to trace the transaction. With all these charges and fees added, chances are you would end up spending a lot more than you had imagined. 

How to make cheap international payments?

If all the costs we mentioned above made you lose heart in hiring employees abroad or expanding, don’t worry. There are several platforms and services that can help you seamlessly carry out international transactions. Two big options are Wise and Ripple.

Wise

Wise, previously known as TransferWise, is an international payment service that is 13 times cheaper than traditional exchange services. Wise has accounts all over the world and allows transfers in 50 different currencies. The company has no hidden fees; you know what you are getting into even before you make a transaction. The service locks the exchange rate so that the value of the transaction does not change before it reaches its destination.

If you create a business account on Wise, then you can send money to about 1,000 people at the same time without paying 1,000 times the transaction fee. It is simple to use Wise, as the sender only needs to have an account to make the transaction happen. 

Ripple

Ripple is a blockchain-based digital money transfer network. The platform has its own native token XRP. XRP acts as an intermediary between two currencies, be it fiat or crypto. The main selling point of using Ripple for financial transactions is that its transaction cost is as low as 0.00001 XRP (or US$0.08174 as of April 6, 2022) for cross-border payments. The service also boasts a quick transaction speed, with the settlement of transactions usually taking only between four and five seconds. 

Ripple is used by many financial institutions. Some even believe that Ripple could replace SWIFT in the future, as it takes away the need for multiple intermediaries as well as markups required to carry out services, with XRP acting as a bridge between currencies. However, before you jump into using Ripple, it is important that you look into the fact that Ripple has an ongoing case against the U.S. Securities and Exchange Commission (SEC) for its failure to register the sales of XRP. This case has made financial institutions and exchanges wary of Ripple.

Header image courtesy of Freepik

SHARE THIS STORY

Share on facebook
Share on twitter
Share on linkedin
Share on email

RELATED POSTS

Elon Musk Buy Next

What Is Elon Musk Going to Buy Next?

There are moments in our lives—perhaps we are in the shower or struggling to sleep at 2 A.M.—when we think about all the ways we could influence the world. We find solutions to crypto volatility, world hunger and our neighbor’s ultra-dry plants.

5 Technologies

5 Technologies That Are on Stage in Russia’s Invasion of Ukraine So Far

On February 21, 2022, Vladimir Putin, President of the Russian Federation, declared the independence of the Donetsk People’s Republic and Luhansk People’s Republic. Arousing international outcry, this ignited the ultimate invasion of Russia on Ukraine three days later. While Ukrainians are still defying Putin’s covetous ambitions, new technologies have been floating on the surface to take advantage of each other.

Technology Joy Ghose

Technology Pioneers – Interview With Joy Ghose of FreeD Group

Over the past 15 years, the Chief Commercial Officer (CCO) of FreeD Group Limited, Joy Ghose, has accumulated plenty of experience in the travel and technology industry. Before joining FreeD Group, Ghose was involved in sales, marketing and management roles at companies like Merlin Entertainments and The Hong Kong Tourism Board.

Creamy Mattes and Beyond Reviewing GoPlay Cosmtics’ Custom Lipstick Maker

To Creamy Mattes and Beyond: Reviewing GoPlay Cosmtics’ Custom Lipstick Maker

While researching for our piece on personal color analysis, I came across the LIPSKIT, a custom lipstick-making tool created by GoPlay Cosmetics. GoPlay Cosmetics is a DIY (do-it-yourself) make-up brand that is looking to prioritize sustainability in the make-up industry without compromising the variety of your lipstick collection.

Ledger vs Trezor

Ledger vs Trezor: Where Should You Store Your Crypto Holdings?

As lucrative as the cryptocurrency world is, it comes with a high risk of losing your crypto because of hacks. To make sure that your crypto holdings stay safe with you, you must carefully choose effective storage solutions for them. One of the ways to keep your crypto secure is by holding it in a hardware wallet.