SWIFT and Correspondent Banking

How international payments actually travel between banks, the role of the SWIFT messaging network, and how cutting countries off from SWIFT became a sanctions tool.

When you send money abroad, it doesn’t travel as a single transfer. It moves through a chain of banks, coordinated by messages.

Correspondent banking

Most banks don’t have accounts with every other bank in the world. Instead, they rely on correspondent banks: banks that hold accounts for each other.

For example, an Indian bank might hold a dollar account with a large US bank. To send dollars from India to a small bank in Kenya, the payment may pass through several correspondent banks, each taking time and fees.

SWIFT

SWIFT, the Society for Worldwide Interbank Financial Telecommunication, founded in 1973 and based in Belgium, is a secure messaging network used by thousands of banks worldwide. It doesn’t move money itself; it sends standardised instructions between banks about payments.

Why cross-border payments are slow and costly

Multiple intermediaries, each charging fees.
Different time zones and operating hours.
Compliance checks for money laundering and sanctions.
Currency conversion.

SWIFT as a sanctions tool

Because SWIFT is so central, cutting banks off from it makes international payments much harder.

Iranian banks were disconnected in 2012, and again after 2018.
In 2022, after Russia’s invasion of Ukraine, several major Russian banks were cut off from SWIFT.

Alternatives

Countries worried about sanctions built alternatives:

Russia’s SPFS.
China’s CIPS, a system for cross-border payments in yuan.

India has explored bilateral arrangements and linking UPI with other countries’ fast payment systems.

Improvements

SWIFT introduced gpi, which tracks payments and speeds them up, and the global ISO 20022 messaging standard to carry richer payment data.

The tuition payment

An Indian parent pays university fees in Australia. The payment passes from the Indian bank through a correspondent bank to the Australian university's bank, with SWIFT messages at each step. It takes a day or two and involves fees along the way.

Thinking SWIFT moves money

SWIFT sends payment messages between banks. The money moves through correspondent accounts.

Key takeaways

International payments often pass through chains of correspondent banks.
SWIFT, founded in 1973, is a secure messaging network for banks.
Cutting banks off from SWIFT became a sanctions tool against Iran and Russia.
Alternatives like CIPS and SPFS, and faster payment links, are growing.