When making bank transfers, whether domestically or internationally, you may have come across the term “local payment route.” In this article, we will explain what a local payment route is, how it works, and how it differs from other payment routes, such as SWIFT, which is primarily used for international payments.
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What is a Local Payment Route?
Local payment routes are designed to facilitate transactions within a specific country or region, often offering faster and more cost-effective solutions compared to international systems like SWIFT. Local payment routes leverage domestic clearing systems, such as Automated Clearing House (ACH) in the United States, Faster Payments in the United Kingdom, or SEPA in the Eurozone, to enable quick and reliable money transfers. This localised approach reduces the complexity, time, and cost associated with processing payments through global networks, making the payments appear as though they were made domestically.
Using Local Payment Routes for International Transactions
While local payment routes are primarily used for domestic transactions, they can also be utilised for international payments. This occurs when a payment service provider (PSP) such as CurrencyCloud has a relationship with a bank or intermediary in the destination country that can facilitate the domestic leg of the transaction. By utilising these domestic systems, PSPs can often reduce costs and improve the speed of transactions.
When to Choose a Local Payment Route
Local payment routes have their advantages and disadvantages. Here are some points to consider:
Pros:
- Flexibility: Ideal when the recipient’s bank does not support SWIFT payments.
- Cost Efficiency: Local payments are free in most cases and have the added advantage that they usually don’t have correspondent banks, meaning no correspondent bank charges.
- Speed: Quicker processing times for domestic transactions.
Cons:
- Limited Features: Usually not traceable, trackable, or recallable, resulting in limited visibility over the payment’s status.
- Error Handling: Difficult to retrieve funds if errors occur in bank details.
- Integration Challenges: Some domestic payment systems are in countries with emerging market infrastructures, making it difficult for PSPs to integrate at scale, potentially leading to delays or issues in processing payments.
Local Payments vs SWIFT
When deciding between local payment routes and SWIFT, it is important to consider the key differences that revolve around traceability, trackability, and recallability. The SWIFT network is known for its comprehensive features and transparency, particularly with the introduction of SWIFT gpi (Global Payments Innovation), which allows for detailed tracking of payments.
Feature | SWIFT | Local Payment Routes |
| Traceability | Feature-rich and highly transparent, especially with SWIFT gpi, allowing for real-time tracking and visibility of payments and any correspondent bank charges. | Usually not traceable, trackable, or recallable, resulting in limited visibility over the payment's status. |
| Trackability | Provides real-time updates on payment progress, similar to tracking a parcel. | Limited tracking capabilities, making it difficult to monitor the payment's progress. |
| Recallability | Payments can often be recalled or corrected if an error occurs. | Difficult to retrieve funds if errors occur in bank details. |
| Cost | Can be more expensive due to correspondent bank fees and other charges. | Often cheaper with no correspondent bank charges, especially for domestic transactions. |
| Speed | Typically slower due to the involvement of multiple intermediary banks. | Quicker processing times for domestic transactions. |
| Flexibility | Ideal for international transactions where full traceability and security are required. | Ideal when the recipient's bank does not support SWIFT payments, providing more payment options. |
| Usage | Best for high-value, cross-border transactions where transparency and security are crucial. | Best for small to medium-sized transactions and when cost efficiency is a priority. |
At Rutland FX, we provide the option to choose between a local route and SWIFT at no additional cost, allowing you to select the best option for your needs. You can do this by selecting either “Priority Payment” or “Regular Payment” when instructing an outbound payment on the platform. “Regular” corresponds to the local route if it’s available, while “Priority” corresponds to SWIFT in most cases.
Local payment routes and SWIFT each have distinct advantages. Local routes offer cost savings and faster processing but lack the advanced tracking features of SWIFT. SWIFT provides comprehensive traceability and transparency. At Rutland FX, you can choose the best option for your needs without additional costs. Evaluate your priorities to make an informed decision for your transactions.
Still not sure?
If you are still unsure or have any further questions, please call us on 0203 026 0112 or request a callback to discuss your requirements.