Why was a certain amount deducted from my SWIFT payment?

SWIFT payment
Rohit18 November 2023

Inner voice: The client's payment will finally arrive in the business account today! I earned this. The entire team earned this!

A message arrives–the amount you received is less than what you charged.

It feels like a loss because it is a loss. But how and why did it happen?

If you transact internationally, a reduced amount appearing in your bank account can be disheartening, stressful, and puzzling. This is particularly true with SWIFT payments sent to India, where unexpected deductions may occur in your SWIFT money without explanation.

SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a financial organisation enabling global transactions. It acts as a bridge between banks and other financial institutions worldwide to facilitate international payments. 

This payment mode is vital for businesses and individuals who engage in global investments and trade. SWIFT payments come with the challenges of lengthy verification processes before funds are released.

Certain banks serve as intermediaries, transmitting funds from a sender to the recipient's bank account. Although their role is crucial to secure a safe and efficient transfer of funds, it can also lead to unexpected deductions in the final payment due to some factors.

Why was a certain amount deducted from my SWIFT payment

How Does SWIFT Payment Work?

SWIFT money transfer works in the following way. 

  • The sender's bank initiates the transaction before it passes through multiple intermediary banks. 
  • As it travels across borders, the intermediary bank may deduct various fees from the amount sent. 

This process makes SWIFT payments expensive. The costs associated with these transactions are typically distributed between the payer and the receiver or may be shared between them. This distribution is determined by the specific payment instruction selected.

  • BEN (Beneficiary Pays): In this scenario, the receiver bears the expenses related to the SWIFT payment, including any fees deducted by intermediary banks.
  • SHA (Shared): Both payer and receiver share the transaction costs, each covering their respective bank fees. The payer pays the sender's bank fees, and the receiver covers their bank fees.
  • OUR (Payer Pays): In this case, the payer assumes the entire cost of the SWIFT payment, including any fees incurred by intermediary banks.

Additional fees include intermediary bank fees, foreign exchange fees, SWIFT network fees, service fees, additional charges for specific services, and exchange rate margins. The cumulative impact of these fees and potential variations in exchange rates can result in higher costs compared to other payment methods. 

The result is a reduced payment by the time it reaches its destination - the recipient's bank in India.

The implications of SWIFT payment deductions in India are real and can greatly impact businesses and individuals. Let's examine the causes behind these deductions, providing examples of how they have impacted the financial well-being of those affected. 

Factors Influencing The SWIFT Payment and The SWIFT Money You Receive 

Factors Influencing The SWIFT Payment and The SWIFT Money You Receive

1. Exchange Rate Fluctuations

The difference between expected and actual payment amounts can be significant due to exchange rate fluctuations. The changes in the value of currencies affect the currency conversion process that often occurs in international payments. 

When a business in the United States sends a payment of $10,000 to a supplier in India, the initial exchange rate of 85 Indian Rupees (INR) per US Dollar (USD) will result in a payment of INR 850,000. 

However, if the exchange rate changes to INR 84 per USD by the time it reaches India, then the final amount would be INR 840,000. This difference of INR 10,000 is lost due to currency fluctuations.

2. Role of Currency Conversion in SWIFT Money Transfer in India

Currency conversion is often required for SWIFT payments to send funds to the recipient's currency. Unfortunately, banks may charge a hidden fee known as a margin or spread to cover the cost of this exchange process. This factor reduces the amount you receive from the actual amount sent.

If your cousin in the United Kingdom wants to send you 1,000 British Pounds (GBP) in India, they can use a bank that offers an exchange rate of 90 INR per GBP for the conversion. 

However, the interbank rate (the rate at which banks exchange currencies with each other) is INR 89 per GBP. This means that due to the margin held by the bank, 1 INR will be deducted from every pound sent, leading to a certain deduction.

3. Intermediary/Correspondent Bank Fees

Intermediary banks have a crucial role in the SWIFT payment system, as they act as the middleman between the sender's and recipient's banks. However, these services come with a cost. 

The fees charged by intermediary banks can vary greatly depending on factors such as the number of correspondent banks involved, the complexity of the transaction, and the specific services provided.

For example, if an Australian business sends a payment of 2,000 AUD to a business in India. During its journey, the payment passes through 4 correspondent banks that each charge a fee of 20 AUD. This results in an overall deduction of 80 AUD from the original payment amount.

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