How are international SWIFT wire transfers settled?

This depends entirely on the transfer currency.

Wells Fargo, like most banks does not have a relationship with every possible bank that
customers may want to transfer money to. So, they usually keep relationships with a
correspondence bank; one (or multiple) banks for each transfer currency.

Most of the world's financial transactions take place in "major currencies"; generally USD, EUR,
GBP.

For USD, the clearing bank is usually a US-bank; for EUR it is usually a bank in the Euro Zone.

So, suppose you want to transfer 200 EUR from your US Wells Fargo account into an account
in French Bank Z.

First, you will enter (for example at the online banking portal of Wells Fargo) the amount you
want transferred. This will either be in EUR or USD. So you might say transfer 200 EUR, and
then the bank will tell you the USD equivalent it will deduct from your USD account.

Next, Wells Fargo will transfer this money from your account into a holding account; and send a
notice to their correspondence bank for EUR - this notice (usually sent over SWIFT) has your
bank information, your personal information, information about the beneficiary bank and
information on the beneficiary account.

That European counterpart bank then further has settlement accounts with the local French
banks. It could be that there are multiple banks in the middle; the Euro bank that Wells Fargo
talks to might be in Germany, for example.

In the end, all Wells Fargo has to do is settle with their correspondence Euro bank; and then
that bank further settles with their other banks until eventually the money reaches French Bank
Z. This process happens at a set interval; long after the actual transfer has taken place.

These settlement accounts are called depending on the banking relationship.

SWIFT is a messaging system, not a settlement system. SWIFT just carries instructions from
one party to the other, not the money itself. SWIFT messages are standardized to enhance the
communication and streamline the processes.
SWIFT interconnects the payments systems where the funds are kept all over the over the
world. Payments systems in all the countries in the world operate on open loop models. You can
download a free guide on my blog about open and closed loop models if you are interested.
Banks must open Nostro / Vostro account before they can settle transactions. Banks send
instructions to debit their Nostro accounts in the currency of the transaction and credit the
beneficiary account. But since currency of the ordering customer account is different from the
currency of the transaction, a currency conversion is required. This leads to the last point.
FX is needed in Cross border transactions and must be managed carefully.

SWIFT msg is something internal to the banking network..it is never shared with customer nor
he can view it.

Now coming to security, a SWIFT message works on RMA keys which guarantees both
authenticity and confidentiality.

The bank identifiers are always used with option A. Now what it means is - in MT103 messages
there are different fields to specify different information like amount, sending bank, beneficiary
bank etc…these are called as tags in SWIFT world. Now these tags can be used with different
options, meaning, for beneficiary bank, you can either specify its name and address (tag option
D), or its unique SWIFT code (option A) or its local clearing code (Option C) etc.. Now, using
options other than A, makes the payment fall in manual action for bank where in staff will have
to manually identify the bank to route the payment to. This impacts the processing speed of the
payment. Therefore, with MT103+, only the tags with option A are used in all the applicable tags
.
This helps improve the speed of processing the payment since there is no manual action
required by the banks staff.

Wells Fargo, like most banks does not have a relationship with every possible bank that
customers may want to transfer money to. So, they usually keep relationships with a
correspondence bank; one (or multiple) banks for each transfer currency.

Most of the world's financial transactions take place in "major currencies"; generally USD, EUR,
GBP.

For USD, the clearing bank is usually a US-bank; for EUR it is usually a bank in the Euro Zone.

So, suppose you want to transfer 200 EUR from your US Wells Fargo account into an account
in French Bank Z.

First, you will enter (for example at the online banking portal of Wells Fargo) the amount you
want transferred. This will either be in EUR or USD. So you might say transfer 200 EUR, and
then the bank will tell you the USD equivalent it will deduct from your USD account.
Next, Wells Fargo will transfer this money from your account into a holding account; and send a
notice to their correspondence bank for EUR - this notice (usually sent over SWIFT) has your
bank information, your personal information, information about the beneficiary bank and
information on the beneficiary account.

That European counterpart bank then further has settlement accounts with the local French
banks. It could be that there are multiple banks in the middle; the Euro bank that Wells Fargo
talks to might be in Germany, for example.

In the end, all Wells Fargo has to do is settle with their correspondence Euro bank; and then
that bank further settles with their other banks until eventually the money reaches French Bank
Z. This process happens at a set interval; long after the actual transfer has taken place.

These settlement accounts are called depending on the banking relationship.

1. "Reversing" (undoing) a standard wire transfer after it has been initiated

If the wire transfer has been processed by your bank via Fedwire/CHIPS and the receving bank
has acknowledged the transfer, then no, it cannot be reversed by sender without the consent /
cooperation of the recipient. If the transaction is still in progress (e.g., stuck in your bank's back
office somewhere) then it may be possible to stop the transaction.

While it isn't possible for the sender to reverse a transaction that doesn't mean that the sender
can't collect the money in other means such as a court order.

2. A "reverse wire transfer" (a wire transfer initiated by the recipient rather than the sender of
funds)
A reverse wire transfer (a/k/a "funds drawdown request" or "Fedwire 1031 drawdown request")
is a special type of wire transfer that is initiated by the recipient to "drawdown" money from the
sender of the funds. This type of wire transfer is very common in large dollar payroll
transactions by payroll processors such as ADP or Paychex, but are also used in other forms of
settlement between business customers.

Reverse wires are very fast (same day, often near real-time) and final (non-reversible). The
downside is that they are expensive ($5-$20 per txn for both the sender and receiver) and
cumbersome to set up (lots of paperwork for setting up the drawdown relationship).

Example payroll use case:

The employer provides an authorization to their bank for the payroll firm to initiate drawdown
wires within some parameters (for example up to $XX / transaction) from the employer's
account to a specific account at the payroll company. Here is a sample authorization form:
When the employer submits their payroll numbers to the payroll provider, the payroll company
initiates a drawdown request for the exact amount for that pay period for all employees and it is
transferred from the employer to the payroll company in a transaction that is same day and
non-reversible. This allows the payroll company to ensure that they have "good funds" before
paying out to the employees. The payroll firm's revenue is very small relative to the amount of
payroll being paid out so this method ensures that they aren't bearing any risk of non-payment
by the employer while also letting the employer provide the funds on the day of disbursement.

This answer is focused on US wire transfers via Fedwire or CHIPS.... Different rules may apply
to various international wire transfer schemes or consumer

Created / Concept Jack Sparrow

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