As the global economy has become more interconnected, more businesses have come to rely on the SWIFT system for international payments. But what is SWIFT, and how are SWIFT codes actually used in international transactions?
Contrary to one common misconception, SWIFT is not a cross-border payment system that transfers actual payments from one bank to another. Instead, it’s a messaging network that enables such payments. SWIFT provides a standardized format that allows banks to securely send and receive payments internationally.
SWIFT codes (also known as BICs) are the 8–11 character identifiers that help this system work efficiently. In this article, we’ll review the basics of the SWIFT network and how it connects financial institutions worldwide. We’ll also take a closer look at SWIFT codes to help you understand what they are, how they’re used, and what all those letters and numbers mean.
What is SWIFT?
The Society for Worldwide Interbank Financial Telecommunication, abbreviated as SWIFT, is a widely used financial messaging system for international payments. SWIFT was founded as a cooperative in 1973, with the goal of supporting international finance. It proposed to do this by building a seamless, secure, and reliable process for inter-bank and international financial payments.
In the decades since its founding, SWIFT has expanded to offer connectivity to over 11,000 financial institutions across more than 200 countries. As a financial messaging platform, SWIFT offers a standardized format that allows banks across different countries to send and receive payment information electronically.
What is a SWIFT code and how does it work?
Between 8 and 11 characters in length, SWIFT codes are unique identifiers that help to tell different financial institutions apart from one another. Every financial institution that’s a member of SWIFT is given a unique SWIFT code that enables it to connect directly with other financial institutions and organizations across different countries.
Each SWIFT code contains several pieces of critical information. This information helps to identify the financial institution as well as the country to which money should be transferred.
A SWIFT code works similarly to a postal code. If you provide an incorrect postal code, your mail will be delivered to the wrong location. In the same way, you will need to provide the correct SWIFT code to enable financial institutions to route your money transfers accurately.
What’s the difference between a SWIFT code and a BIC?
If you’ve ever heard of a BIC—also referred to as a Bank Identifier Code or Business Identifier Code—you may wonder how it differs from a SWIFT code. In many cases, SWIFT codes and BICs are terms used interchangeably to mean the same thing.
Why the confusion? SWIFT is the name used to describe the messaging system, while BIC is the name used to describe the individual codes used within that system. For example, if you need to send or receive an international payment or money transfer, your financial institution may request a Bank Identifier Code (BIC). This is the same 8–11 character code that you might otherwise refer to as your SWIFT code.
It’s important to note that not all BICs are connected to the SWIFT network, so these non-connected BICs won’t be referred to as SWIFT codes.
Anatomy of a SWIFT code / BIC code
The International Organization for Standardization specifies the elements of a BIC and how it is structured. There are two types of BICs, the 8-character and the 11-character BIC. The 8-character “root” of a BIC is also referred to as a Business Party Identifier.
A BIC includes the following elements:
- Party prefix – This consists of four alphanumeric characters that help to identify a business party within a country.
- Country code – This consists of two alphabetic characters and identifies the country where a business party is located.
- Party suffix – This consists of two alphanumeric characters that help to identify a business party within a country.
- Branch identifier – This is an optional 3-character code that can be added to the 8-character Business Party Identifier to form an 11-character BIC. It identifies a specific branch or department of an organization.
To use an example, let’s examine the SWIFT code BOFAUS3NXXX. Referring to the above elements, we can identify each set of characters as a specific element of the code:
- Party prefix – BOFA
- Country code – US
- Party suffix – 3N
- Branch identifier – XXX
It’s important to note that some financial institutions may have several SWIFT codes for different purposes or payment types.
Is a SWIFT code the same as an IBAN?
Though both are used to process cross-border payments, the SWIFT code differs from the IBAN, which stands for International Bank Account Number.
The IBAN is used to identify bank accounts across national borders. It consists of a series of alphanumeric numbers that can run up to 34 characters. The format of this number may be different depending on the country; IBANs in European countries, for example, have a maximum of 27 characters.
So, what’s the actual difference between the SWIFT code and the IBAN?
While the SWIFT code identifies the specific financial institution and country for a cross-border financial transaction, the IBAN identifies the bank account within a financial institution in a country. The SWIFT code and the IBAN are often used as complementary identifiers to complete international banking transfers.
IBANs are used mainly by European countries, though many other countries throughout the world rely on IBANs as well. Financial institutions in the United States do not use IBANs; instead, they use American Bankers Association (ABA) routing numbers, which facilitate the clearing, processing, and settlement of financial payments.
Who can use SWIFT and SWIFT codes?
Financial institutions and organizations can use the SWIFT infrastructure to process payments.
Examples of organizations that benefit from the SWIFT network include:
- Clearing houses
- Securities dealers
- Treasury organizations
- Foreign exchange brokers
- Investment banks
- Asset management companies
If your financial institution uses SWIFT, you can use a SWIFT code to send international payments across the world.
How to process international payments using SWIFT codes
When you need to send a payment to another party in a different country, you can process your payments using SWIFT. The SWIFT code allows your financial institution to connect with the financial institution in another country that will receive your payment.
You will need to provide the SWIFT code of the other party’s financial institution to your financial institution. You may also need to provide other banking details for the receiving financial institution, such as bank name and address, bank transit number, account name, bank account number, and IBAN (if applicable).
What fees are associated with SWIFT payments?
Your financial institution may charge a fee for helping to facilitate a SWIFT payment. Also, because international transfers involve payment processing in different currencies, you may need to pay foreign currency conversion fees.
International wire transfers can become even more pricey if a financial institution is not a participating SWIFT member, as you will need other financial intermediaries to complete a payment transaction.
How fast are SWIFT payments?
SWIFT payments are not instant. The process involves a lot of validations and verifications, including anti-money laundering checks, anti-fraud prevention, and other compliance checks before the actual payment settles. This process can slow down SWIFT payments considerably, and some payments may take up to four or five days to complete.
Confirming the correct SWIFT codes for a financial transaction is essential to avoid inaccurate processing, delays, and extra charges. You can check the SWIFT code for a financial institution through your online banking platform, the bank’s website, online (using credible sources), or by contacting the bank directly.
Global money transfers made simple with Levro
The global economy depends on SWIFT to ensure safe and secure payments across borders. If you or your business needs to make a payment to a foreign financial institution, you’ll likely need to know your way around a SWIFT code / BIC and understand how it works.
Here at Levro, we’re working to make global money transfers even more seamless for international companies. Our all-in-one platform brings cards, your payment wallet and compliance into a single account.