SWIFT vs IBAN - Differences you need to know

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SWIFT vs IBAN - Differences you need to know

SWIFT vs IBAN - Differences you need to know

When there is an international money transfer from one bank to another there are two internationally recognized, standardized methods of identifying bank accounts. An International Bank Account Number (IBAN) and a Society for Worldwide Interbank Financial Telecommunication (SWIFT) code. IBANs and SWIFT codes are like the address and postal code for bank accounts when sending money internationally. If you're sending money abroad or expecting to receive international payments, you'll need these codes to make sure the money gets to the right place.

International Bank Account Number (IBAN)

Think of the IBAN as a special code that tells you which country the bank is in and the account number of the person receiving the money. It's like a built-in checker to make sure all the transfer details are right. The code starts with the two digit country code, then some numbers, and finally, a mix of letters and numbers, which can be a few characters long.

This checking and identification method is mostly used in European Union countries and some other European nations. In 1997, the International Organization for Standardization (ISO), a group made up of representatives from different countries' standards organizations, created a set of rules for making IBANs the same across the world.

The European Committee for Banking Standards (now the European Payments Council) raised worries that the initial IBAN standards were too flexible. So, they made some changes. One of the rules they added was that each country's IBAN had to be a set length. They also said only capital letters could be used in the IBAN.

IBANs are used now in about 70 countries. However IBAN is not in use in many countries, prominent amongst them are USA, Canada, Australia, New Zealand, India, China, South Africa, Thailand, Cambodia, Vietnam, Philippines.

Society for Worldwide Interbank Financial Telecommunication (SWIFT) Code

The SWIFT system is a highly secure special messaging network that banks and Financial Institutions use to send messages and instructions to each other. It started in 1973. Each bank gets its special code, which can be either eight or eleven characters long.

Most international money transfers still use the SWIFT system. One big reason is that it lets banks share lots of financial information, like account status, money amounts coming in and going out, and details about the transfer itself.

To make sure an international transfer goes smoothly, you need to have both the SWIFT code and IBAN. Which one you need depends on the banks involved and the countries where the money is coming from and going to. But if you don't have either of these codes, it's much harder to get the transfer done right.

Difference between SWIFT and IBAN

  • An IBAN is like a 32-character code made up of letters and numbers. It includes a two-digit code for the country and another two-digit code for checking if the IBAN is correct. With these characters, you can tell which bank and country the account belongs to, and also the specific account itself.
  • A SWIFT code is like a special code with 8 to 11 letters and numbers. It starts with four letters for the bank, followed by two letters for the country, two numbers for the location, and sometimes three more digits for the branch. Unlike IBAN codes, SWIFT codes don't tell you the specific account number; they just point to the bank and its branch.
  • In the European Union and nearby countries, people often use IBANs for transfers. Banks in the US and Canada don't have IBANs themselves, but they know about the system and use IBANs when sending money internationally.
  • SWIFT codes are widely accepted worldwide, especially outside Europe, and are the standard choice for international transfers. Unlike IBAN, which is mostly used by banks, SWIFT is also embraced by other institutions like clearinghouses and brokerages.

Process of international money transfers before IBAN and SWIFT codes were introduced

Before IBAN and SWIFT codes were introduced, there wasn't a standard way to identify bank accounts internationally. Each country had its system, which could cause confusion and errors when sending money between countries.

Because there was no standard method, it was hard to make sure the right information was entered for the transfer. This could lead to payments going to the wrong people or being delayed while the details were checked. Mistakes and delays cost both the sending and receiving banks extra money.

When IBAN and SWIFT codes were introduced, it made things much easier. Now, there's a clear and standard way to identify bank accounts and make international transfers, which helps save time and money for everyone involved.

How do you find a bank’s SWIFT code?

You can typically locate your bank's SWIFT code on your account statement or by checking your bank's website.

How do you find your IBAN?

If your bank uses IBANs, you can often find it on your account statement or their website. Some European banks even print the IBAN on their customers' bank cards. You can also double-check this number using an online IBAN tool.

IBAN is widely used for international transfers among countries in the Eurozone and nearby areas like Turkey, Israel, Switzerland, and the United Kingdom. It's also used in other places, but not as commonly as the SWIFT system.

IBANs and SWIFT codes are both important for international payments, but they serve slightly different purposes. A SWIFT code tells you the specific bank and branch of your recipient's account, while an IBAN ensures your money reaches the correct account within that bank and branch. So, you typically need both to ensure your international payment gets to the right destination.

Even though both IBAN and SWIFT are vital for international bank transfers, they serve distinct roles in the process. IBAN, prevalent in Europe and neighboring regions, provides a standardized format for identifying recipient bank accounts within these areas. On the other hand, SWIFT codes offer a global reach, enabling transfers to virtually any bank worldwide. Understanding the differences between IBAN and SWIFT is crucial for performing international transactions efficiently and ensuring funds reach their intended destination securely. Whether you're sending money within Europe or across continents, having knowledge of both IBAN and SWIFT is essential for smooth and successful international banking.