June 21, 2024

Comparison between IBAN and SWIFT - Consultant Forbes Germany

Comparison between IBAN and SWIFT – Consultant Forbes Germany

Cross-national interbank wire transfers would be a logistical nightmare if there was no standardized way to identify the “sender” and recipient accounts.

Two standard methods for international transfers have been established: meinternational BArrival athe account number (IBAN) and the symbol society for Wall over the world meinterbank FHistorical TLetter (Swift).

In the article you will learn about how IBAN and SWIFT work and how they differ from each other.

What is an International Bank Account Number (IBAN)?

IBAN stands for meinternational BArrival athe account number, i.e. IBAN. The IBAN system was established in 1997 by the International Organization for Standardization (ISO).

How is the International Bank Account Number (IBAN) formed?

The current ISO standard specifies that IBANs can contain up to 32 characters consisting of numbers and letters. More precisely, the IBAN contains:

  • 2-letter country code, for example DE
  • Two-digit check number (used for error detection)
  • The so-called Basic Bank Account Number (BBAN), consisting of up to 28 country-specific alphanumeric characters.

The IBAN identifies not only the particular bank involved in the transfer, but also the individual bank account. An IBAN is assigned to each bank’s customers.

Where can you find the IBAN?

As a bank customer, you can often find your IBAN on your bank statement, your Girocard, or when you log into online banking.

When do you need an IBAN?

You must give your IBAN to those who wish to transfer funds to you (from Germany or within the European Union). If you want to make a transfer, you need to know the IBAN of the recipient.

In which countries is the IBAN used?

The IBAN has established itself primarily in Europe (inside and outside the EU as well). However, the number is also available in some countries in Africa, South America, and the Middle East.

The United States and Canada do not use an IBAN, although both countries recognize the system and process IBAN payments.

What is the cost of an IBAN transfer?

Banks may charge fees for IBAN transfers. However, direct banks in Germany usually waive this or charge fees only if the transfer is to be made on the spot.

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In the Forbes Advisor comparison of the best online checking accounts, conversions are usually free.

What is a swift code?

SWIFT was established in Brussels in 1973 to standardize international transfers. Swift means society for Wall over the world meinterbank FHistorical Telectronic.

The majority of international money transfers are based on the SWIFT system. This is partly because the SWIFT method was longer than the IBAN.

Unlike the International Bank Account Number (IBAN), which includes the individual bank account of the transfer recipient, SWIFT only provides information about the bank branch. This is what is called BBusiness meidentifier codes, BICs.

SWIFT works like the messaging system that banks use to communicate about transfer orders.

How is a Swift code created?

SWIFT BIC consists of eight to 11 characters:

  • Four-character routing number
  • 2-letter country code
  • Two-digit site code
  • Optional 3-digit branch code

How does the transfer with SWIFT work and how much does it cost?

If the sending and receiving bank have a regular business relationship, the funds will usually be deposited in the receiving bank as soon as the SWIFT message is received.

However, both banks usually charge a processing fee. In addition, the receiving bank may also charge a foreign exchange fee if the customer requests a different currency conversion from abroad.

If the two banks do not have a business relationship with each other, SWIFT usually facilitates the transfer, but you have to use another bank (correspondent bank).

In this case, the sending bank debits the bank account of the person who initiated the transfer and sends it to an intermediary bank that has a direct relationship with the receiving bank.

This “financial downtime” not only slows down the conversion process, but often increases fees as well. Because the correspondent bank often charges a fee for their service.

What alternatives are available to SWIFT?

SWIFT international transfer fees cost a flat rate of €20 or more. Especially with small transfer amounts, the fees are sometimes disproportionate to the costs.

Some fintechs, often apps, have taken over the international remittance business in recent years – offering them much cheaper rates. They often act as correspondent banks, that is, intermediaries between the bank that sends and receives money.

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In addition to Paypal, Wise, formerly Transferwise, is also known in Germany. Depending on the currency, the company charges little fees for foreign transfer. Sending 140 euros to Brazil, for example, cost about 2.80 euros at the end of February – that’s 2 percent.

The account holder in Germany had to send the transfer amount in euros, including fees, to the Wise account via IBAN transfer. Once there, Wise sends the money and deposits it into the Brazilian account. This type of “pause” transfer can take up to three business days, but is cheaper.

Other types of transfer, such as credit card or direct form (wire transfer) cost a bit more – but they are faster. As a consumer, it is worth trying out these offers. Especially if you often like to send money abroad. Or, as a German, you want to pay for services abroad in local currency.

How to use IBAN and SWIFT correctly?

What you need to know about IBAN and SWIFT depends on whether you are sending or receiving money.

What should you pay attention to when sending money?

If you want to send money internationally using IBAN or SWIFT, double check that the number or code is indeed correct. With long number and letter combinations, a shifted number can happen quickly.

If you (accidentally) use the wrong number or code, the bank may reject or return your transfer. You may also have to pay a processing fee to your bank.

If you only have partial information about the IBAN, there are calculators that will help you find out the correct IBAN. In addition, each bank must provide its own SWIFT BIC code on their website. It is better to compare the data directly with the recipient in advance.

What should you pay attention to when receiving money?

If someone must transfer money to you, you must share your IBAN with that person. This is also “secure” because the IBAN really only serves to designate the recipient of the funds (ie you). On the other hand, no one can (fraudulently) debit the funds from your account using your IBAN.

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You can usually find SWIFT BIC codes easily, for example on your bank’s website or on a Girocard.

Comparison between IBAN and SWIFT

While the IBAN is used exclusively for bank transfers, SWIFT is also used by a number of financial service providers, including:

  • broker
  • wealth manager
  • exchanges
  • clearing houses
  • government bond dealers
  • forex trader

Although IBAN and SWIFT codes are described as two different (“either or”) systems of conversion, they are often used together.

When making an IBAN transfer, the recipient’s SWIFT code is often included. With online banking, the software often adds a BIC code automatically. With the “dual” information, your bank can designate the receiving bank and the recipient’s account directly and clearly.

If you are sending money to a country that does not follow an IBAN, a SWIFT code is required. Since your SWIFT transfer may be routed through a correspondent bank, this often results in additional fees.

You can take that from the text

IBAN and SWIFT make it possible to transfer funds across borders with accuracy and speed. The IBAN is valid in Europe and many other countries, such as Africa, South America, and the Middle East. On the other hand, SWIFT dominates in North America.

Traditionally, there is a processing fee for international transfers. It is advisable to know this in advance. With SWIFT transfers, it depends on whether the sending bank and the receiving bank have a regular business relationship with each other. In this case, the fees are often lower.

On the other hand, it becomes more expensive if the banks do not maintain a working relationship. Then a correspondent bank is often needed as an intermediary – and an additional fee is often incurred for the service. A cheaper alternative might be private transfer apps like Paypal or Wise.