IBAN Vs. SWIFT Code: Understanding International Funds Transfer Options (2024)

A financial transfer between banks in two different countries would be a logistical nightmare if there weren’t a standardized method for identifying both the sending and receiving bank accounts.

There are two such standardized methods: the International Bank Account Number (IBAN) and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) code.

It’s important to understand how each of these transfer identifiers works and how they differ from each other, since both IBAN and SWIFT play an essential part in international financial transactions. Here’s what you need to know about IBAN numbers and SWIFT codes.

What Is an IBAN?

This internationally agreed-upon system was set up in 1997 by the International Organization for Standardization (ISO). The current ISO standard specifies that IBANs will have up to 32 alphanumeric characters, consisting of:

• A two-letter country code
• A two-digit check digit (used for error detection)
• A Basic Bank Account Number (BBAN), consisting of up to 28 country-specific alphanumeric characters

The IBAN number identifies not only the specific bank involved in the transfer, but also the individual bank account. For this reason, banking customers will be assigned a specific IBAN for each account they have at an IBAN-supporting bank.

If you are a banking customer in a country that uses IBAN, you should be able to find your IBAN on your statement. If you can’t locate your IBAN, you can request it from your bank. You will use your IBAN to receive international transfers, but it is not needed for transfers you initiate or for withdrawals.

The IBAN is primarily used in European and European Union countries. The United States and Canada do not use IBAN, although both countries recognize the system and process IBAN payments when handling an international transaction using IBAN.

Read more: 4 Great Ways For Expats To Manage And Transfer Money

Banking customers who send money using an IBAN can expect to pay a processing fee and possibly a commission on their IBAN transfer. The receiving bank may also charge another processing fee to the recipient.

What Is a SWIFT Code?

The SWIFT system was created in Brussels, back in 1973, to provide a standardized system for handling international transfers. The majority of international financial transactions rely on the SWIFT system for transfers. This is partially because the SWIFT method has been around longer than IBAN.

Unlike IBANs, which specify the individual bank account for the transfer recipient, SWIFT Business Identifier Codes (BICs) only provide the bank branch information. A SWIFT BIC is made up of eight to 11 alphanumeric characters, consisting of:

• A four-letter bank code
• A two-letter country code
• A two-digit location code
• An optional three-digit branch code

While IBAN works a little like the routing and account numbers for a specific bank account, SWIFT is more like a messaging system that banks use to communicate transfers. If both the sending and receiving banks have a relationship with each other, the money will transfer immediately upon receipt of the SWIFT communication by the receiving bank. However, both banks will charge some kind of processing fee. Additionally, the receiving bank may also charge a foreign exchange fee.

If the two banks do not have a direct commercial relationship with each other, SWIFT will still facilitate the transfer, but it will have to go through an intermediary bank (also known as a correspondent bank).

In that case, the sending bank will debit the sender’s bank account and send the money to an intermediary bank that has a direct commercial relationship with the receiving bank. Not only does this “financial layover” in the intermediary bank slow down the process of the transfer, but it also may add to the fees. Generally, the intermediary bank will charge a fee for facilitating the transaction between the two unrelated banks.

Using IBAN and SWIFT

What you need to know about IBAN and SWIFT varies, depending on whether you’re sending or receiving funds.

Sending Funds

Anyone sending money internationally with either IBAN or SWIFT should make sure they double check the number or code before initiating the transfer. Using an incorrect number or code could cause the transfer to be rejected and returned, and you may potentially have to pay a fee to your bank for the inaccurate payment information.

There are calculators available that may be able to help you figure out an IBAN if you only have partial information, and each bank should provide its SWIFT BIC on its website, but the best place to check is with your intended recipient.

Receiving Funds

In order to use IBAN as a recipient, you must provide your IBAN number to anyone who plans to transfer money to you. Since IBAN is used solely for receiving money, this should not be a security concern, as no one can use an IBAN number to access funds in an account.

SWIFT BICs are easily available to every banking customer, as the majority of banks provide this information on their website or upon request.

While the IBAN is used solely for bank transfers, SWIFT is used by a number of financial institutions, including:

• Broker/dealers
• Asset management companies
• Clearinghouses
• Exchanges
• Corporate business houses
• Treasury market participants and service providers
• Foreign exchange and money brokers

IBAN vs. SWIFT

Though IBANs and SWIFT codes can be described as an either/or choice, you will often find that they are used in conjunction with each other. To send money overseas with an IBAN, your recipient will have to be in a country that supports this system and will have to provide you with their IBAN number. However, in many cases, you will also need the recipient’s SWIFT code in addition to the IBAN. Doubling up on these numbers allows the banks to pinpoint your recipient’s bank and their specific account.

If you are sending money to a non-IBAN country, you will have to solely use the SWIFT code. Since your SWIFT transfer may have to go through correspondent banks, this may mean additional fees for each bank the money has to pass through before reaching its recipient.

Bottom Line

IBAN and SWIFT make it possible to accurately and quickly transfer funds across borders. For anyone who needs to make international financial transactions, it’s important to understand how these systems work and what potential costs they may have. Although it may be difficult to avoid the costs of using either IBAN or SWIFT, knowing the mechanics behind how these systems operate can help ensure you are not surprised by commissions, exchange fees or correspondent bank fees.