What's the difference between an IBAN and a swift code?
The main difference between an International Bank Account Number (IBAN)
and a Society for Worldwide Interbank Financial Telecommunication
(SWIFT) code lies in what they identify. A SWIFT code is used to
identify a specific bank during international transaction, whereas IBAN
is used to identify an individual account involved in the international
transaction. Both play an essential role in ensuring the smooth running
of the international financial market.
Prior to the introduction
of these identification methods, there were no
internationally-recognized, standardized methods of identifying bank
accounts. The information that one country used to identify the bank and
individual account was not necessarily recognized by the receiving
country. Lack of standard practice meant there was no way to ensure that
the information entered was correct. As a result, payments could
theoretically be made to the wrong people or organizations. Similarly,
payments could be delayed while the identifying details were confirmed.
Missed, delayed and mistaken payments caused additional costs to both
sending and receiving banks.
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 Committee for Banking Standards, that there was too much
flexibility within the proposed standards. The reworked version of the
standard included a ruling that required the IBAN for each country to be
a fixed length. It also stipulated that only upper case letters could
be used within the IBAN.
An IBAN allows for easy identification
of the country the bank is situated in and the account number that is
the recipient of the money transfer. The IBAN also acts as a method of
checking that the transaction details are correct. This method of
checking and identification is used within all European Union countries
and the majority of other European countries. Exceptions to this, as of
2014, are Russia, Belarus, Ukraine and Armenia. Canada and the United
States of America are two major countries that do not use the IBAN
system. However, they recognize the system and process payments
according to the system.
The SWIFT system predates attempts to
standardize international banking transactions through IBAN. It remains
the method by which the majority of international fund transfers are
made. One of the main reasons for this is because the SWIFT messaging
system allows banks to share a significant amount of financial data.
This data includes the status of the account, debit and credit amounts,
and details related to the money transfer. Banks often use the Bank
Identifier Code, more commonly recognized as BIC, instead of the SWIFT
code. However, the two are easily interchangeable; both contain a mix of
letters and numbers and are generally between eight and 11 characters
in length.
Being able to access both of these identifiers is
essential to ensuring a quick 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 is originated
and received. However, without either, the chances of the transfer being
completed successfully diminish considerably.