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The Difference Between TransferWise and SWIFT
Headquartered in Belgium, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) was created in 1973. It provides a secure network that financial institutions from different countries use to transmit information about transactions in a standardized manner. The system allocates unique Bank Identifier Codes (BICs) that help identify individual branches of different banks.
TransferWise is a UK-based overseas money transfer company that lets individuals and businesses send money to and from different parts of the world. Transfers to most countries made via TransferWise rely on the peer-to-peer (P2P) system. However, if you fund your TransferWise account through a bank account transfer, the transfer, in all likelihood, will make use of the SWIFT network.
How TransferWise P2P Transfers Work
You start by transferring money into a local TransferWise account. Depending on where you live, you may make your payment via a bank account transfer, a debit card, a credit card, direct debit, or SOFORT. Once you initiate your transfer, TransferWise works in matching your transfer with someone who wants to transfer funds in the opposite direction.
The person initiating the transfer from the other end also deposits funds into a local TransferWise account. After the transfer is complete, both end up receiving money from local bank accounts. This way, the money is not actually transferred overseas, minimizing the role that banks get to play.
If TransferWise cannot find a match for a transfer from the other end, it processes the transfer on its own. However, this tends to come at an added cost. In addition, while TransferWise supports P2P transfers in major currencies, it still relies on the SWIFT system to process transfers in most exotic currencies.
Alternatives to SWIFT
P2P transfers are not the only alternatives to SWIFT transfers. PayPal, for instance, facilitates fund transfers between its users without using the SWIFT system. Cross-border transfers within member states of the European Union tend to rely on the Single Euro Payments Area (SEPA) system. U.S.-based Ripple Labs Inc. has created Ripple, a blockchain-based real-time currency exchange and remittance network. Europe has been working on an alternative to the SWIFT system, as has Russia.
Now that you know the different between TransferWise and SWIFT, what you essentially need to determine is if you want to go the P2P or SWIFT way. If your transfer through TransferWise finds a match at the opposite end, there is a good chance that you might save some money.
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