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SWIFT and SEPA payments: what you need to know about SEPA and SWIFT money transfers

People are looking for inexpensive channels to make money transfers and expect the bank to act in faith to aid them. However, customers are often dumbfounded when charged with high fees to send and receive money because they did not make the right kind of payment with the correct payment reference. SEPA and SWIFT payments are the most common payment system done by banks and financial institutions. They are different, yet people do not know the difference, or even if they do, they do not know its requirements in real-time.

Therefore, this article is analyzing some crucial factors of SWIFT and SEPA payments:

What is SEPA transfer and SWIFT payment?

The most commonly known standards for payment reference in financial transactions are SEPA and SWIFT. However, there are many other payment systems that other countries use, such as the UK's Bankers' Automated Clearing Services and the Clearing House Automated Payment System. The United States has the Automated Clearing House system. This article will only focus on SEPA and SWIFT payments.

What is SEPA payment and who uses it?

SEPA stands for Single Euro Payments Area, a European initiative under the single market to enable cross-border cashless payments in the EU under the single Euro currency. Thanks to the SEPA system, customers can use a single bank account to make transactions to any account located anywhere in the region. People in eurozone countries can use their bank accounts to collect wages and make payments anywhere inside the eurozone. The list of countries that use SEPA include the EU, the EEA, Switzerland, the United Kingdom, and Monaco.

It is not possible to use SEPA to make payments in currencies other than the euro. Domestic payments in non-euro SEPA countries will still need to use local systems, but cross-border payments will need to use SEPA and the euro for most transactions. But some non-euro countries have taken their own initiatives to make transfers between their countries. For example, the Nordic Payments Initiative (NPI) have been launched to ease cross-border payments between Nordic nations that do not use the euro.

A SEPA bank transfer requires an IBAN number and are usually free, but some banks may decide to charge a fee for making a transfer. A SEPA transfer includes four distinct schemes to execute the payment through a specific instrument. These include:

  • SEPA Credit Transfer
  • SEPA Instant Credit Transfer
  • SEPA Direct Debit for consumer
  • SEPA Direct Debit for B2B

What is SWIFT payment and who uses it?

SWIFT, on the other hand, stands for Society for Worldwide Interbank Financial Telecommunication. It is a corporation that provides a secure network to banks to send financial messages and secure financial transfers of money internationally. The SWIFT network assigns a unique ID to payments around the world to identify their institutional sender (the bank), location, and branch to transfer money securely.

Both SWIFT and IBANs are used to identify parties involved in money transfers. IBAN codes are used in international transactions to specify a bank account rather than to identify the particular bank that uses SWIFT codes.

A SWIFT transfer can be made between different currencies. Almost every country's banks and financial institutions in the world use SWIFT, and it makes up for most international transactions. A SWIFT payment requires the receiver's details, like bank account number, address of the bank, and the SWIFT code. SWIFT incurs a charge, mostly for both transfers and currency conversion, which either party can pay.

What is the difference between SEPA and SWIFT payments?

The biggest difference between SWIFT and SEPA is where they are used. SWIFT lets people all over the world send and receive money in different currencies, while SEPA only lets people send and receive money in euros in countries that are part of the SEPA zone.

Both networks have different sizes. SEPA payments system is used by 36 European countries, but SWIFT is used by more than 11,000 banks and financial institutions in more than 200 countries around the world.

Furthermore, SEPA payments are quick and easy and do not require bank identifier codes (BIC), which are also called SWIFT codes, or other bank information. For SWIFT payments, however, you do need to enter detailed information about the bank and the person receiving the money.

How long does SEPA and SWIFT transfer take?

A SEPA transfer's completion time is determined by the type of SEPA transfer you select. One SEPA credit transfer takes one business day to clear. On weekends and public holidays, the transfer is pending. SEPA instant credit transfers take less than 10 seconds to be completed, even during the weekend and public holidays. SEPA core direct debit transfers take at least two business days to clear, and SEPA B2B direct debits take three business days to complete. The transfers for both SEPA Core direct debit and B2B direct debit are pending during weekends and public holidays.

A SWIFT payment can take around one to five working days to complete once the transfer has been initiated. Slow clearance can be attributed to the banks' fraud prevention and anti-money laundering (AML) measures and if there are any intermediary banks involved in the transfer. The processing time is also impacted by bank holidays and weekends.

What are the advantages of using SEPA and SWIFT payments?

The overall goal of SEPA is to make payments easier and cheaper across the Eurozone. Both consumers and businesses benefit from SEPA. Customers can put all of their payments into one bank account. The introduction of EMV cards and the implementation of the Payment Services Directive (PSD) have made consumer card transactions safer and improved and standardised consumer protection. This includes:

  • standardising and improving refund rights for all payment products
  • being able to put creditors on a blacklist, and
  • being able to limit how much a direct debit can be

Furthermore, SEPA makes it easier to see how transaction fees vary from country to country, thus upholding transparency. This is possible because transaction volumes are consolidated and management of corporate bank accounts has been simplified.

Process efficiency is another benefit that companies get out of SEPA. Transactional information is sent in a standard way to both the payer and the recipient, which cuts down on administrative work.

Because SWIFT uses standardised messages internationally, it is a clear way for institutions to communicate with each other and send transaction details in a safe way. With a unique, anonymous identifier that each bank gives to its customers on its own, financial institutions can cooperate with other banks while keeping control of the user identity registration process. By doing this, banks can use their own Know Your Customer (KYC) processes and don't have to rely on other banks or registration authorities. Using SWIFT has a number of known benefits:

  • Transparency: SWIFT payments make it clear how much money is involved, how it moves between banks, what fees are involved, and what kind of payment it is. With this information, everyone can keep track of the transaction and know how much it will cost and how long it will take.
  • Traceability: Because SWIFT shows how the money moved between banks and how much money was involved, it is a clear and widely accepted proof of payment.
  • Consistency: Because messages are always structured the same way, it's easy to figure out payment information no matter where you live or what language you speak.

What are the disadvantages of using SEPA and SWIFT payments?

Both SEPA and SWIFT payments have developed both global and European payment systems. SEPA payments have eased cross border European transfers, while SWIFT dominates the international payment market. However, there are still challenges many clients face under both systems. For instance, SEPA transfers have the following hurdles:

  • People from non-euro countries are forced to pay more for SEPA transfers because the currency is only available in euros.
  • Both the sender and the receiving bank must have an instant SEPA system in order for the Instant SEPA transfer to work. If either of the banks operates under regular SEPA, then regular SEPA system will prevail.
  • On bank websites, many people confuse domestic with SEPA transactions. This is because banks categorise SEPA payments under international payments in their system.
  • The payment mechanisms in many European countries are already highly efficient, such as P27 in Nordic countries. SEPA offers no additional value to non-euro countries.

As for SWIFT transfers, they are slow and it takes around 3 business days to clear them in real time. Not to mention the cost of SWIFT transfer, which is high. Then there are intermediary banks in SWIFt transfers which can cost the clients additional charges, and there is no transparency about the amount. On average, the cost can be from 10 to 30 euros per transfer, and it can go higher if there are multiple intermediary banks involved, and the client will not even know the existence of intermediary banks until all is paid.

How much do SWIFT and SEPA cost?

How much does SEPA transfer cost? It depends on the country. Most SEPA transfers are free because domestic transfers are. SEPA transfers can cost clients if domestic transfers are also charged by the member state. But costs can be higher for countries using non-euro currencies due to currency conversion. However, the charges vary from bank to bank as well.

SWIFT, on the other hand, can cost the payer around 3 to 4% of the amount, and that includes currency conversion and other administrative costs. In real money, SWIFT costs can be up to 30 EUR per transfer, and the charges differ from bank to bank and depend on the currency. In some cases, both the sender bank and the receiver bank in a SWIFT transfer may charge the party. Both senders and receivers, therefore, need to understand what fees they might incur under SWIFT payments.

Are you being overcharged for the transfer?

Banks often charge customers for SEPA transfers by mistakenly sending them under a SWIFT payment. This may happen for several reasons:

  • The sender does not understand the difference between SEPA and SWIFT transfer; thus, they did not realise when they were setting up the payment and chose the wrong transaction category.
  • The online banking system was too outdated or confusing for the sender to understand whether they were making a SEPA or a SWIFT payment.
  • Although rare, the banks have tricked the sender into using SWIFT transfers to earn commissions.

The consequences of a mistaken money transfer are costly. Apart from the expensive fees in SWIFT, customers also face delays. The SEPA receiver bank may not accept the SWIFT payment and may reject the transaction overall. This leads to the uncertainty of refunds, which may take months to receive.

What can you do to avoid being overcharged?

Customers only need to observe minor details when making a transfer so that banks can not overcharge you, whether SEPA or SWIFT. When setting up an online payment, notice the information your bank is asking for. If the bank is making a SWIFT payment, they will ask for the following details to process the payments, which are not required for SEPA transfer:

  • The receiving bank's address, including branch
  • The beneficiary's address
  • The SWIFT code or BIC code
  • Payment details include SHA (shared) or OUR (sender covers all transfer charges)
  • Currency specification
  • A large fee

A SEPA payment is strictly made in euros. It does not require an account number, branch codes, beneficiary's address, or the receiving bank's address for processing transactions. If you notice these details, you are likely making a SWIFT payment.

Sadly, some banks trick their customers into paying SWIFT fees for SEPA payments. Fortunately, the EU parliament voted for European banks to eradicate SWIFT payments within European borders to make transfers more reliable. After 2019, European banks are forbidden to charge you for SWIFT payments within the EU.

Summary

SWIFT and SEPA are two of the most common ways to send money from one country to another. Both payment service providers were made to offer a safe and reliable way for more and more money to be sent internationally. Although they cater to different geographies, their payment systems have become more dominant in the market due to their overarching standardisation and simplification of payment systems. Both have their benefits and disadvantages in terms of transfer time and costs. However, a client may be charged for a SWIFT transfer when making a SEPA transfer instead. This is due to either a confusing banking system or bank fraud. And although there is guidance on how to avoid being overcharged for SEPA, the European parliament is looking to eradicate SWIFT transfers completely within the European borders. SWIFT transfers would still exist, but only for transactions made outside the Eurozone.

The Parliament vote does not, however, eradicate the problem entirely as banks still resort to these underhanded business measures for commission. Suppose you suspect your bank is unlawfully charging you for a SWIFT payment you did not intend to make. In that case, we urge that you report it to the relevant authorities.

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