International payment systems and how they work

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Transferring money across borders, whether it is done by a bank or a banking service provider, comes at a cost. It also requires the use of a specific payment system and certain details to identify the relevant bank accounts. Alongside the name or company name of the receiving party, specific banking codes are required to identify the correct accounts. While the two internationally recognised methods to identify bank accounts, IBAN and SWIFT, hold the monopoly around the world, alternatives systems are being tested in Russia and China.

How are costs addressed in international payments?

International payments require the contribution of several banks in order to be processed. Those of both the issuer and the beneficiary, as well as any intermediary banks. Processing such payments generates payment fees that the issuer, as originator of the transaction, can either assume, share or invoice to the transferee. These three payment instructions are referred to as BEN, SHA, OUR. So what are the differences between the BEN, SHA, OUR charge options and why should business in particular know about them for their B2B payments?


    1.  "SHA" (stands for “Shared”)
      For each transaction, the costs are shared between the beneficiary and the issuer of the payment. The costs of the issuing bank are borne by the party sending the funds, while the costs of the intermediary and beneficiary banks are deducted from the amount sent, and borne by the beneficiary. The more institutions involved, the higher the costs will be. This system is used for about 60% of market transactions.

    2.  "BEN" (stands for “Beneficiary”)
      The transaction costs are invoiced to the payment beneficiary, as a deduction from the payment amount. This system is not very widespread and accounts for only 10% of market transactions.

    3.  "OUR" (OUR)
      The issuer of the payment chooses to cover all costs. This ensures that the beneficiary receives full payment. This model represents about 30% of market transactions.


What is a SWIFT code?

The SWIFT method exists since the 1970s. It stands for Society for Worldwide Interbank Financial Telecommunication, a messaging system used by banks and financial institutions to send and receive information, and notably to transfer payments. In terms of users, it represents the most recognised method used to transfer funds internationally with more than 10,500 financial institutions and corporations in over 200 countries.


To navigate through the SWIFT network, every financial institution is assigned a unique code: a Business Identifier Code, or BIC. Both terms are often used interchangeably but in practice, SWIFT is the issuing organisation controlling the use of BIC, which are themselves often referred to as “BIC codes”.

The complete official list of BIC in use around the world is even available for consultation.


Did you know? 

The acronym BIC was initially Bank Identifier Code but in 2009 the norm was updated to include institutions. Because BIC was already a widely used and accepted term, the acronym was kept but the “B” now stands for “business”.


What does a SWIFT code look like?

SWIFT codes (or BIC) only provide information about the bank and are composed as follows:


SWIFT (BIC) code explanatory image


While some countries like the USA, Australia, Singapore, and South Africa use a SWIFT number, others, especially in Europe, as well as some areas in the Middle East, North Africa and the Caribbean use an IBAN number.

SWIFT gpi - the new standard in international payments

Developed by SWIFT to improve international payments, SWIFT gpi, which stands for global payment innovation, is intended to make international payments faster and more transparent. By joining the gpi, banks must follow a new set of rules including transparency of fees, end-to-end payment tracking, confirmation of credit to the recipient's account, and data record consistency. Thanks to this new technology enabling real-time tracking of cross-border payments, international payments are becoming as simple as local payments.

What is an IBAN number?

Introduced in 1997, an IBAN, or International Bank Account Number, is a unique identifier for a bank account. Before its introduction, countries all had their own bank account formats which led to errors and delays in cross-border transactions. As of 2020, 79 countries use IBAN numbers to make international payments simpler. This more recent system was introduced to improve the verification of cross-border payments and reduce errors, rejected payments, transfer delays as well as bank fees. The ISO 13616 IBAN registry, published by SWIFT, provides the technical specifications of the national IBAN formats of countries using this banking standard.


What does an IBAN look like?

All IBAN numbers follow the same format which comprises up to 34 alphanumerical characters as follows:


IBAN explanatory image


The format systematically starts with two letters that refer to the country in which the account is located followed by two check digits used for error detection. It ends with a series of country-specific alphanumerical characters. This series of digits, called a BBAN or Basic Bank Account Number, varies in length depending on the country’s standards. It includes all the relevant information used to determine the bank account in question. It is itself made up of three parts: a bank code, a branch, and an account number.

Checking the validity of bank details is crucial to prevent bank transfer fraud and to build trusting business relationships. One way of making sure the IBAN you were provided is valid is by inputting it in an IBAN checker.



Both codes are the two internationally recognised methods to identify bank accounts and enable quick and accurate international transfers.

The main difference between the two methods is that while the IBAN identifies a specific bank account, the SWIFT code identifies the bank or branch in which the account is held. In both cases, transfers can take up to 5 working days and are processed by intermediary banks to prevent transfer fraud. To avoid errors and frauds, IBAN numbers contain more information about the money transfer operation.


However, if you’re based in the European Union, you may have come across yet another acronym: SEPA.


What is SEPA?

SEPA stands for Single Euro Payments Area and is a widely used form of bank transfer within the European Union. It was first introduced in 2008 by the European payment and banking industry with the aim of harmonising non-cash euro payments. As of 2020, 36 members are part of SEPA:

  • 27 EU Member States
  • The 4 members of the European Free Trade Association
  • 4 microstates which have monetary agreements with the EU
  • The United Kingdom (even with Brexit)


SEPA payments are made using the recipient’s IBAN number. Unlike SWIFT payments that work in most countries around the world, SEPA payments can only be made in euros to accounts within the member countries. Because SEPA transfers can only be made in one currency, there are no conversion rates and transfer commissions. This means transfers can be processed quickly, in 1 to 2 days compared to up to 5 days with SWIFT. This ultimately makes SEPA a particularly fast, cheap and secure payment method among European countries. In the case of a SEPA payment, any charges will automatically be shared.


Alternative global payment systems

In their efforts to reduce their reliance on the all-powerful US dollar, Russia and China have been seeking alternatives to the SWIFT system. With most of their bilateral transactions still being carried out in US dollars and traded via the SWIFT system, the two countries are subject to America’s ability to block their transactions from the system. As a result, China and Russia are stepping up dedollarisation efforts and working towards a departure from financial systems connected to the United States.

In the East, China launched the Cross-border Interbank Payment System (CIPS) in 2015. While CIPS provides clearing and settlement services for cross-border renminbi (RMB) payments and trade, it still relies on the SWIFT system as a communication channel. For now. But the creation of CIPS is directly contributing to China’s efforts to advance internationalisation of its currency in an effort to eventually break away from the SWIFT system.

In Russia, the Central Bank of Russia has been developing its own system called the System for Transfer of Financial Messages (SPFS). The country first decided to develop the system in 2014 following the economic sanctions imposed against it and notably the United States’ threat to disconnect Russia from the SWIFT system. For Russia and its multibillion exports, a disconnection from the SWIFT system can spell disaster, terminating all international transactions, causing significant currency volatility and massive capital outflows. Russia is in talks to expand the use of its SPFS to developing countries like Turkey and Iran and to date, 23 foreign banks in countries ranging from Armenia, Belarus, Germany, Kazakhstan and Switzerland, have connected to the system.

Nonetheless, these alternative systems are still in testing phases and their global relevance is limited. For now, SWIFT codes and IBAN numbers remain the principal systems for transferring funds across borders. Using an incorrect number or code could cause the transfer to be rejected and returned, and potentially lead to unwanted costs. An IBAN checker will give you detailed information on the IBAN number you are transferring money too, including whether it is valid and if it pertains to the correct bank account.