What is SWIFT, and what is swifter?
Buy something or transfer money and you're asking banks to transfer money to one another. When we invest and pay friends electronically, we're asking for funds to be transferred between institutions. Clearly, the communication enabling this transfer needs to be reliable, secure, fast, etc. Since 1978, SWIFT has enabled a system to address these needs.
What is SWIFT?
SWIFT, the Society for Worldwide Interbank Financial Telecommunications, enables international money transfers. It's the world premier messaging network, facilitating communication between financial institutions worldwide. Well over 10,000 financial institutions around the world use SWIFT to complete transactions, they are members of the SWIFT standardized bank messaging system.
SWIFT does not hold or transfer assets. It facilitates communication between member institutions. Members pay fees to join and for yearly membership. Members also pay for SWIFT messages they send.
Each member institution a unique ID code (a BIC number) that identifies the bank name and the country, city, and branch.
SWIFT members sent, on average, ~45 million messages per day as of November 2022.
SWIFT works well when the buyer and seller work with the same currency even though settlement takes up to 5 days. Most transactions on this network use US Dollars or Euros, but when smaller-volume currencies are involved, the fees get expensive, reaching 3-5%.
These fees include foreign exchange markup and fees from the sender and recipient's banks as well as any intermediary bank fees and tracking fees.
Why These Fees Exist
Banks justify forex markups due to operational costs, hedging risks, and market opacity, allowing them to offer less favorable rates than the interbank (wholesale) rate. For example, when trading between Mexican and Swedish currency, MXN-SEK, the limited liquidity of those currencies makes fees higher.
Other recent applications of SWIFT's monopolistic banking control
In 2022, EU Council Regulation (EU) 833/2014 prohibited SWIFT and other financial messaging providers from providing services to designated Russian entities and subsidiaries. Based in Belgium, SWIFT must comply with EU regulations. EU Council Regulation (EU) 765/2006 prohibited SWIFT from working with designated Belarusian entities and subsidiaries. As a result, both Russian and Belarusian entities were disconnected from SWIFT.
So what alternatives have emerged?
What is swifter?
In the years since SWIFT went live in 1978, new financial technologies have emerged that settle payments faster and cheaper.
The status quo faces challengers. Namely, blockchain-based payment threatens to disrupt the current version of SWIFT. Blockchain-based payment proves to be
- faster
- cheaper
- more transparent and real-time trackable
- more secure (better cryptography and decentralized)
SWIFT recognizes their outdated technology and has started live trials with Ripple's XRP.
This project creates a path forward to next-generation payment technology, but current SWIFT systems remain slow and expensive (especially for developing nations with less popular currencies).
Therefore, SWIFT faces growing competition for global payments from CIPS (Cross-Border Interbank Payment System).
As China's RMB-based network, CIPS processes large transaction values as well, projected to reach the RMB equivalent of US $30 trillion in 2025. It handles an average daily value of around US $90.95 billion, making it a proven and growing platform for cross-border payment in Asia and Belt and Road countries.
RenMinBi Settlements to Bypass USD Conversions
CIPS is built as a real-time gross settlement system, specifically for cross-border payments, authorized by the People's Bank of China. This allows participants to settle transactions directly in RMB without routing through intermediary banks or converting to a third currency like the US dollar, which is common in SWIFT for non-major currency pairs (e.g. MXN to SEK). Key ways it avoids conversion issues:
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Direct RMB Clearing: If a transaction is denominated in RMB from the start—such as a Mexican exporter invoicing a Chinese buyer in RMB—CIPS enables end-to-end settlement without forex conversions. This eliminates forex and bank fees, as payments are processed instantly via CIPS's network of over 1,690 participants in 121 countries. Businesses in Belt and Road Initiative countries can settle RMB trades much more affordably than via traditional routes, avoiding double conversions (e.g., local currency to USD, then USD to RMB) and a variety of bank fees.
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Low Transaction Fees: CIPS reports an average of 0.01% per transaction, far lower than SWIFT's combined bank and forex costs. It operates 24/7 with features like Delivery Versus Payment (DVP) and Payment Versus Payment (PVP) to mitigate risks, further reducing cost.
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Local Currency Integration via CNH: For local currencies (e.g., MXN), CIPS supports conversions to offshore RMB (CNH) in regions with bilateral agreements, like some African or Latin American countries. This allows direct local-to-CNH exchanges, bypassing USD intermediaries and reducing overall cost.
While SWIFT members may settle more trade with a neutral asset like XRP in the future, they are currently losing message volume to CIPS.
References:
https://www.investopedia.com/articles/personal-finance/050515/how-swift-system-works.asp
https://www.cips.com.cn
https://www.csis.org/analysis/sanctions-swift-and-chinas-cross-border-interbank-payments-system