IBAN code vs. SWIFT: An Overview
The SWIFT code is used to identify a specific bank during an international transaction, while the IBAN is used to identify an individual account participating in the international transaction.. Both play an essential role in the proper functioning of the international financial market.
- International bank account numbers and codes from the Society for Worldwide Interbank Financial Telecommunications facilitate international money transfers.
- The SWIFT code is used to identify a specific bank during an international transaction.
- An IBAN is used to identify an individual account involved in the international transaction.
International bank account number IBAN
According to the European Payments Council, standardization was first introduced in 1997 with the publication of ISO 136:1997. However, concerns were raised, mainly by the European Banking Standards Committee, that there was too much flexibility in the proposed rules. The revised version of the standard included a provision requiring each country’s IBAN to have a fixed length.
The IBAN allows you to easily identify the country where the bank is located and the account number of the recipient of the money transfer. The IBAN is also used to verify that the transaction details are correct. This verification and identification method is used in all countries of the European Union and in most other European countries.
The United States of America and Canada are two of the main countries that do not use the IBAN system; however, they recognize the system and process payments accordingly.
The SWIFT funds transfer system
The SWIFT system predates attempts to standardize international banking transactions through the IBAN. One of the main reasons for this is that the SWIFT messaging system allows banks to share a significant amount of financial data. This data includes account status, debit and credit amounts, and details related to the money transfer. Banks often use the Bank Identifier Code (BIC) instead of the SWIFT code. However, both are easily interchangeable; both contain a mix of letters and numbers and are usually between eight and 11 characters long.
The ability to access both identifiers is essential to ensure a fast and successful international transfer. The identifier required by the bank depends on the bank being used, the recipient’s bank, and the countries in which the transfer originates and is received. However, without either, the chances of a successful transfer are greatly diminished.
IBAN and SWIFT code: Special considerations
Before the introduction of these identification methods, there were no internationally recognized and standardized methods for identifying bank accounts. The information that a country used to identify bank and individual accounts, the sending country, was not necessarily recognized by the receiving country.
The lack of standard practice meant that there was no way to ensure that the information entered was correct. In consecuense, payments could be made to people or organizations in the wrong way. Similarly, payments could be delayed while identification details were confirmed. Missed, delayed and wrong payments caused additional costs to both issuing and receiving banks.
The introduction of these identification methods was instrumental in helping to streamline the process of making international money transfers.