Cross-border payments are the backbone of the global economy, enabling businesses, individuals, and institutions to send and receive money internationally. Behind every successful transfer lies a complex chain of processes, participants, and regulatory checks. Understanding these steps helps companies manage financial operations efficiently and minimize delays or extra costs.
Initiation of a Payment
The process begins when a sender instructs their bank or payment provider to transfer funds abroad. The sender provides key details: the recipient’s name, account number or IBAN, the recipient’s bank BIC or SWIFT code, the amount, and the currency. The payment order must also comply with international formats and anti-money laundering (AML) rules.
At this stage, the sending bank verifies that all information is correct. Any error in account details or format can lead to a rejection or delay. Once verified, the sender’s account is debited, and the transfer request enters the interbank network.
Role of Correspondent Banks
Not all banks maintain direct relationships with each other. If the sender’s and receiver’s banks do not share a direct connection, the transaction is routed through correspondent banks — financial institutions that act as intermediaries to bridge different banking systems.
For example, a small bank in Asia may not have a direct line with a bank in Europe. Instead, it uses a correspondent bank in the US or the EU to relay the funds. Each intermediary adds its own verification and charges, which can influence both the speed and total cost of the payment.
Messaging Through the SWIFT Network
Most international transfers are coordinated via the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network. SWIFT does not move money directly — it transmits secure financial messages that instruct banks how to execute payments.
When Bank A sends a SWIFT message (MT103, for instance) to Bank B, it details the amount, sender, recipient, and all intermediary banks involved. This encrypted communication ensures all parties know how and when to credit or debit accounts.
Even though newer systems such as SEPA, Fedwire, or RippleNet exist, SWIFT remains the global standard for interbank messaging, connecting more than 11,000 institutions worldwide.
Currency Conversion and Exchange Rates
If the transaction involves different currencies, a foreign exchange (FX) conversion takes place. Depending on the arrangement, conversion can occur at the sender’s bank, an intermediary, or the recipient’s bank.
Exchange rates may vary significantly among providers. Some institutions offer mid-market rates, while others include a margin. Transparent providers display both the conversion rate and all fees upfront, which allows businesses to calculate the real cost of the transfer.
Compliance, Sanctions, and Fraud Screening
Every international payment is subject to strict compliance checks. Banks and payment providers must screen transactions against sanctions lists (such as OFAC or EU regulations), monitor for suspicious activity, and confirm that both parties are legitimate.
This compliance layer is critical for preventing money laundering, terrorism financing, and fraud. In some cases, if a red flag appears — for example, a match with a restricted entity or incomplete documentation — the payment may be held for manual review or additional verification.
Settlement Between Financial Institutions
After verification and approval, funds are settled between the participating banks. Settlement can occur directly through accounts held at central banks or indirectly through correspondent networks.
In traditional SWIFT transactions, settlement may take one to three business days, depending on time zones, intermediaries, and bank cut-off times. However, new solutions — like SWIFT gpi (Global Payments Innovation) — provide end-to-end tracking and faster confirmation, allowing senders to see when the recipient’s account is credited.
Credit to the Recipient’s Account
The final stage is when the recipient’s bank receives the funds and credits the destination account. Depending on the currency and local processing rules, this can happen immediately after settlement or after a short delay.
Recipients usually receive a notification, such as a credit advice or confirmation message. The payment record then includes a traceable reference ID, ensuring both sides can verify completion if needed.
Tracking and Transparency Tools
Modern payment systems provide tracking similar to parcel delivery. Using SWIFT gpi, senders can follow each step of the transfer, from initiation to settlement, including timestamps and intermediary bank details.
This transparency helps businesses reconcile invoices, verify compliance, and demonstrate transaction accuracy during audits. For large corporations with thousands of cross-border payments each month, these features reduce administrative time and uncertainty.
Factors Affecting Speed and Cost
The time and expense of cross-border transfers depend on several factors:
- Number of intermediaries: More correspondent banks mean longer processing and higher fees.
- Currency pairs: Rarely traded currencies can cause delays due to limited liquidity.
- Destination country: Local banking infrastructure and regulatory oversight vary.
- Cut-off times: Transfers submitted after processing hours are postponed to the next business day.
Choosing the right provider — whether a traditional bank or a specialized fintech platform — often makes the difference between a same-day transfer and a week-long delay.
Future of Cross-Border Payments
The global financial system is evolving toward faster, more transparent, and less expensive cross-border transactions. Emerging technologies, such as blockchain-based settlement, real-time gross settlement systems (RTGS), and central bank digital currencies (CBDCs), aim to replace slow and costly correspondent networks.
At the same time, international regulators are aligning compliance frameworks to make transfers smoother without compromising security. These innovations promise a future where sending money abroad feels as seamless as a domestic transfer.