SWIFT has transformed the B2B landscape, allowing seamless cross-border payment solutions. Here’s why you need to consider other options.

As businesses are adopting digitization and interconnecting with various economic zones, cross-border payments are gaining increasing importance. They allow brands to execute transactions with vendors, business partners, and employees in different countries. An example of B2B cross-border payments includes making a payment to a vendor of yours who is overseas for the products supplied or services provided. Paying employees based in foreign nations also counts as a B2B international transaction. Such money transfers involve different currencies, requiring conversion.

SWIFT (Society of Worldwide Interbank Financial Telecommunication) has become a dominant and trusted payment network for cross-border transactions. It forms an integral part of the global payment system and is a common choice for businesses for overseas money transfers.  The interesting aspect of SWIFT is that it is not a payment system in itself but helps banks and financial institutions exchange encrypted data and safeguard their processes.

Over the recent years, the payment  As of May 2022, SWIFT witnessed 46.1 million financial information (FIN) messages each day, and this figure continues to grow every year. It provides a single platform for payment exchange across borders. This saves you from integrating multiple systems for the different components involved in international transactions.

SWIFT has been established as a trusted payment network that gives banks and financial institutions assurance that the money exchanged is safe.  However, this payment network has some downfalls, which is why businesses are now considering valid alternate channels of cross-border payments. In this article, we have covered these in detail and suggested other efficient payment networks for international payment exchanges.

What are the challenges of SWIFT?

Although the SWIFT network is popular, there are some drawbacks associated with this legacy system. With emerging facilities like open banking, API payments, and money transfer alternatives, several options support easier, faster, safer, and more flexible payments. Let’s dive into the hurdles with this technology.

Slow processing

Transactions through SWIFT can be slow, taking up to 5 days to process if there is more than one intermediary bank. Typically, every transfer goes through several banks, including central banks within the network, which is a complex cycle. The speed may compromise the urgency of payments to go through.

Opaque fees

The SWIFT network implements a system that goes through several stages. The payment order moves from the sender’s bank to the recipient’s bank through a series of intermediary banks. Every financial institution involved is free to determine the fees they charge their business customers. Thus, each of them accepts a fee, and sometimes these could be hidden charges. As a result, the total fees could be a larger amount than expected, making this process costly. 

Ecosystem vulnerabilities

When it comes to processing cross-border payments with SWIFT, the efficiency depends on the operational resilience of every financial institution/bank in the chain. If there is an issue with any party, a chain reaction can arise, delaying your payment or even blocking it.

Technically complex

Since there are various components in the SWIFT cycle, you require sufficient resources to get it up and running. The process can be cumbersome for different financial systems, thereby restricting the benefits of automation.

Political

Every country has its own regulations and restrictions by governing bodies. For this reason, you may encounter limitations in specific geographical regions due to political tensions or conflicts. These can influence the financial institutions and central banks that can access SWIFT.

Top 5 SWIFT alternatives

Challenges with SWIFT payments

Apart from SWIFT, other options are emerging for businesses to enhance cross-border payments. Each of these alternatives overcomes the drawbacks of the SWIFT networks. The applicability of each method depends on your brand’s needs and ability to access it.

Card networks

International card networks such as Visa, Mastercard, and Amex are accepted worldwide and offer a convenient and secure channel. As more and more transactions happen online, these can incentivize brands to purchase more through reward and protection schemes. The only downside here is that card transactions may charge you currency conversion fees plus other charges. You may experience several benefits with these networks but there may be some reliance on SWIFT infrastructure for payment processing, delaying the settlement times. Moreover, businesses incorporating card transactions need to consider the impact on their balance sheets, especially for additional fees associated with these financial exchanges.

Fintechs

Fintech service providers leverage APIs to address roadblocks and improve traditional banking networks. This SWIFT alternative provides you with options like pre-funding to create an illusion of instant payments. In this way, there is automatic re-routing for the fastest and the most efficient path, along with real-time tracking of payment progress. Partnering with fintech providers allows your brand the flexibility to delegate the processing work, giving them time to focus on the core activities. Streamlining overseas payments becomes possible with fintechs, making them a quick and cost-effective solution.  

Blockchains and Cryptocurrency

Blockchain is a shared database or ledger distributed among nodes on a computer network. It offers a transparent protocol for all global users. Cross-border transactions are a top use case of blockchains. They allow the payer and payee to operate with the same data formats and protocols, enabling smooth fund transfer. Blockchains are not restricted by operating hours or geographical barriers.

Cryptocurrency, on the other hand, could be another excellent SWIFT alternative, especially if you are struggling with slow payments. It offers a fast and transparent channel that exchanges payments via cryptocurrency wallets.

Other banking networks

You can leverage domestic banking networks to transfer money between international bank accounts like EFT, SEPA, and BECS. Domestic banking networks are another option for processing payments, enabling instant cash flow and low-cost fund transfers. Such alternative payment channels offer you a range of options for improving cross-border payment processes. The feature that stands out is allowing tailored solutions to specific needs and regional infrastructures. You can access reliable and efficient payment processing capabilities without being restricted by geographical locations.

Summing up

SWIFT payment networks have helped businesses expand across borders, providing a secure payment channel in several locations. They have introduced a large-scale transformation in cross-border transactions remittance. SWIFT’s financial network fulfills the needs of numerous businesses and their clients worldwide to allow international transfers. However, this leading international payment system also has some challenges, making it a good idea to explore and enable these emerging solutions. These cost-effective payment alternatives fill the gaps that SWIFT has yet to address. Brands may not completely give up on SWIFT for the various benefits associated with this network. It is more likely to co-exist with the alternative channels that work best for your business.

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