In international business, SWIFT Codes are a common part of conducting transactions. For merchants and companies who transfer payments internationally, SWIFT codes identify banks so the money is withdrawn and deposited in the right place. It’s up to the company to locate their banking SWIFT codes to ensure quick and accurate payment. Understanding how SWIFT codes work is important for smooth transactions that result in fast and easy payments.
1. What is SWIFT?
SWIFT stands for Society of Worldwide Interbank Financial Telecommunication. Their goal was to be an intermediary and executor for cross-border payments, helping them move smoothly, serving a very important need in today’s global commerce.
Financial institutions worldwide have the option to become part of SWIFT’s network. They provide messaging systems and use the latest technology to ensure safe and expedient international commerce. The network is vast, comprising close to 11,000 entities who transmit approximately $33.6 million USD every day.
Since the concept of SWIFT was created to make an efficient cross-border payment system, their solution for a seamless, integrated, universal process includes a series of codes. This system is used all over the world to great success.
2. SWIFT code - An Overview
The SWIFT code is a Business Identification Code (BIC) assigned to banks by SWIFT as an easy cross-border payment solution. For any transaction this bank makes on an international level, the SWIFT code is used. The purpose of the code is to act as an international digital language to conveniently conduct payments overseas. The concept makes for a fast, hassle-free process. A bank must opt into SWIFT to receive the code and be part of the network. This vast system is electronic and uses a cloud platform to quickly transmit codes to and from banks.
Made of up eight to eleven characters, codes are assigned using an algorithm of three parts: the institution, the country, and the local location (city, town, etc). Banks that choose to use eleven characters do so usually to identify a specific branch. This is the case when more than one branch exists in a local area. For example, bank franchises that have multiple locations in a big city, such as London or New York City or San Paolo, will likely use an eleven-character SWIFT code to designate the specific branch.
Here’s how it works: when a person transfers money individually, they will go to their bank with the recipient’s banking SWIFT code and an international account number (more on that later). The local bank will then send a SWIFT message to the recipient’s bank to accept the transfer. Upon the recipient’s bank approval, the payment is posted and the transfer is complete.
3. Does every bank have a SWIFT code?
No, but every bank has the option to obtain a SWIFT code. If a bank does not want to engage in cross-border transactions, then it would have no need to become part of the network. Once again, SWIFT is an international organization created for convenience, but there is no requirement for banks to be affiliated with it (though many are). For banks who do engage in cross-border transactions, the benefit of affiliating with SWIFT is having access to a secure and streamlined method of transferring money internationally.
4. Is a BIC code the same as a SWIFT code?
BIC stands for Business Identifier Code, of which every business can be assigned. The SWIFT code is a type of BIC code assigned by SWIFT, so technically they are not the same. However, the terms are used interchangeably and when conducting financial exchanges, the terms mean the same thing. If a business is asked to supply the BIC code, they are requesting that eleven-character code that SWIFT assigns. The SWIFT code is simply the BIC code assigned by SWIFT and indicates the bank is part of the SWIFT network.
5. What is IBAN, and how is IBAN Different From a SWIFT Code?
The financial cousin to SWIFT is IBAN – the International Bank Account Number. This is another code often needed to send money overseas. While the SWIFT code stands as a kind of international bank ID, the IBAN represents the accounts within a bank. When visiting a financial institution, one needs that SWIFT code, but also the IBAN for both people on either side of the transaction.
6. Why do we Need IBAN?
The IBAN serves as a launch pad and landing pad, in a sense. We need IBAN to start and end the transfer. To go back to our earlier example, let’s assume an American, Fred, would like to send money to his friend Ana in Brazil. The steps include the following:
- Fred visits his local bank and puts in the request. He provides Ana’s bank and her IBAN number.
- Fred’s bank contacts Ana’s bank to make the transfer request. To locate Ana’s bank, the SWIFT code is used. To locate Ana’s account at the bank, they input the IBAN.
- The transfer is approved
- Fred’s bank locates his account using IBAN, so they can take the money from his account.
- The money leaves Fred’s account and deposits in Ana’s electronically.
The IBAN number is where the transaction will both originate and culminate. Without it, there’s nowhere to withdraw the money from, and there’s nowhere to make the deposit.
7. How do I Locate my Bank's SWIFT Code?
SWIFT codes are important, and the good news is that locating your bank’s SWIFT code is easy. There are several ways to go about retrieving the code. A simple internet search supplies many sites that list banking codes all over the world. But the most straightforward way to get the code is to simply ask your bank. Many also have their codes listed in the international banking section of their website. SWIFT codes are important to have available for anyone conducting regular international transactions. If you use a third-party like EBANX, they are an excellent resource to ensure for smooth cross-border business and can help with elements like SWIFT codes.