IBAN vs. SWIFT Code: What's the Difference?

IBAN vs. SWIFT Code: An Overview

There are two internationally recognized, standardized methods of identifying bank accounts when a bank transfer is being made from one country to another: an International Bank Account Number (IBAN) and a Society for Worldwide Interbank Financial Telecommunication (SWIFT) code. The primary difference between the two methods lies in what information the codes convey.

An IBAN is used to identify an individual bank account involved in an international transaction while a SWIFT code is used to identify a specific bank during an international transaction. Both IBANs and SWIFT codes are essential components of the process by which individuals can transfer money overseas, and they both play an essential role in the smooth running of the international financial market.

IBAN

An IBAN allows for the easy identification of the country where the bank is located and the account number of the recipient of the money transfer. The IBAN also acts as a method of checking that the transaction details are correct. The number starts with a two-digit country code, then two numbers, followed by up to three to five alphanumeric characters.

This method of checking and identification is used within the majority of European Union (EU) countries and other European countries.

In 1997, the International Organization for Standardization (ISO) first developed a system of standardization for IBANs. The ISO is an international standard-setting body composed of representatives from various national standards organizations.

However, concerns were raised, mainly by the European Committee for Banking Standards (now the European Payments Council, the decision-making and coordination body of the European banking industry) 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 uppercase letters could be used within the IBAN.

SWIFT Code

The SWIFT system is a messaging network that financial institutions use to securely transmit information and instructions through a standardized system of codes. It was formed in 1973. The SWIFT system assigns each financial organization a unique code that has either eight characters or 11 characters.

It remains the method by which the majority of international fund transfers are made. One of the main reasons is the SWIFT messaging system allows banks to share a significant amount of financial data, including the status of the account, debit and credit amounts, and details related to the money transfer.

Being able to access both IBANs and SWIFT codes 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.

If you're making a SWIFT transfer and are unable to provide an IBAN, you'll need to include other information to identify the specific receiving bank account, such as a bank account number.

Key Differences

An IBAN consists of 32 alphanumeric characters, including a two-digit country code and a two-digit checksum. This is enough to identify an individual bank account, as well as the bank and country of the recipient.

A SWIFT code has 8 to 11 alphanumeric characters. This includes four letters to identify the recipient's bank, a two-letter country code, a two-digit location code, and an optional three digits to identify the specific branch. Unlike IBAN codes, a SWIFT code does not identify a specific account number.

IBANs are commonly used for transfers in the EU and neighboring countries. Banks in the United States and Canada do not have IBANs, but they do recognize the system and use these numbers to process outgoing international transfers.

SWIFT codes are more universal than IBAN and are the default standard outside of Europe. In addition, while IBAN is mainly restricted to banks, SWIFT is also used by other institutions, such as clearinghouses and brokerages.

Examples of an IBAN/SWIFT Code

IBAN

TR330006100519786457841326 is an example of an arbitrary IBAN for an account in Turkey. The characters in this number are explained as follows:

• TR indicates that the account is located in Turkey
• 33 is a checksum that indicates if the rest of the IBAN is typed correctly
• The recipient bank is indicated by 00061,
• The receiver's account number is 0519786457841326

SWIFT Code

BOFAUS3NXXX is a representative code for messages in the SWIFT system. In this example:

• BOFA identifies the name of the destination bank (Bank of America N.A.)
• US is the country code for the United States
• 3N is the location code for New York City

The optional suffix XXX indicates the bank's head office.

Special Considerations

Before 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 accounts of the sending country was not necessarily recognized by the receiving country.

Lack of standard practice meant there was no way to ensure 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.

The introduction of these identification methods was crucial in helping to streamline the process of making international money transfers.

The Bottom Line

IBAN and SWIFT are the two common standards for sending international bank wires. Both can be used to identify a recipient's bank, so that other parties can send money to them, even across borders. IBAN is the leading standard within Europe and neighboring countries, although the SWIFT system extends worldwide.