When you begin your journey in payments, you can easily feel overwhelmed because of the many types of payments and payments systems available out there. How to easily understand what they are and how to differentiate them?
In this article, we revisit one key concept and explain the differences between SEPA Payments, UK Faster Payments and SWIFT Payments.
The key concept is about the categories of payments. Payments can be grouped in two categories: Domestic and International Payments.
Domestic and International Payments
A domestic payment is an electronic funds transfer that is carried out in the same country or the same monetary zone (Country and monetary zone can be used interchangeably in this article). And the transfer is in the currency of the country. Domestic payments share the same market infrastructures. They go through clearing and settlement systems that support the currency of that country and are under the supervision of the central bank of that country.
Everything else is an international or cross border payment. A cross border payment involves at least two countries or monetary zones. The currency can be:
- the one of the Sending party (Example: a AUD Transfer from Australia to UK)
- or the one of the receiving party (a GBP Transfer from Canada to UK)
- or any other currency (a USD Transfer from UK to China)
UK Faster Payments and SEPA Payments
UK Faster payments are used for rapid fund Transfer in GBP between two accounts located in UK. A faster payments cannot happen between UK and Germany or between UK and Denmark. It is one method to transfer funds in the UK. It has become the standard because it allows to transfer funds in a matter of seconds. Another method is the BACS payment. But BACS transfers take three (long) days and Faster payments were introduced to provide a better alternative.
What about SEPA Payments?
SEPA payments are transfers in Euro between accounts located in the SEPA Area. The SEPA Area is a monetory zone with currently 36 countries. As said above, these countries share the same market infrastructures that support Euro and are under the supervision of the European Central Bank.
At this stage we understand that UK Faster payments and SEPA are domestic payments.
Now let’s consider SWIFT. SWIFT is a network that facilitates the cross border funds transfer. Many believe SWIFT is a payment system, but that is not the case. SWIFT does not hold any accounts nor any funds. SWIFT operates a global network interconnecting financial and non-financial institutions and allowing them to exchange payments messages and instructions in a secured way. The funds are kept on bank accounts. The SWIFT messages do not carry the funds. They are standardized instructions saying what should happen with the funds. You can see SWIFT like a network interconnecting the market infrastructures of all the monetary zones in the world.
In this blog, there are five detailed articles about SWIFT. Read them if you want to understand more about SWIFT. I think it is a good reading since we received excellent feedback.
- 4 key strategies to understand how cross border payments work
- Strategy #1 to understand how cross border payments work
- Strategy #2 to understand how cross border payments work
- Strategy #3 to understand how cross border payments work
- Strategy #4 to understand how cross border payments work
In summary, UK faster payments and SEPA Payments are domestic payments used respectively in UK and in the SEPA Area. SWIFT is a global network used for the secure exchange of payment instructions between the different monetary zones. SWIFT is not a payment system. It provides standards to improve the communication in the financial industry and facilitates cross border payments.