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Payments Explained
In international business, SWIFT Codes are a standard part of conducting transactions. SWIFT codes identify banks for merchants and companies who transfer payments internationally so the money is withdrawn and deposited in the right place.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 vital for smooth transactions that result in fast and easy payments.
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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 and serving a vital 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 suitable international commerce. The vast network comprises close to 11,000 entities that transmit approximately $33.6 million USD daily.
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.
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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 a global digital language to conduct payments overseas conveniently. 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 electronic system uses a cloud platform to transmit codes to and from banks quickly.
Made of up to 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 when more than one branch exists in a local area. For example, bank franchises with multiple locations in big cities, such as London, 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. The payment is posted upon the recipient’s bank approval, and the transfer is complete.
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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, it would not 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.
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Is a BIC code the same as a SWIFT code?
BIC stands for Business Identifier Code, to which every business can be assigned. The SWIFT code is a type of BIC code posted by SWIFT, so technically, they are not the same. However, the terms are used interchangeably, and the words mean the same thing when conducting financial exchanges. If a business is asked to supply the BIC code, they request the eleven-character code that SWIFT assigns. The SWIFT code is simply the BIC code posted by SWIFT and indicates the bank is part of the SWIFT network.
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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 is a kind of international bank ID, the IBAN represents the accounts within a bank. When visiting a financial institution, one needs the SWIFT code and the IBAN for both people on either side of the transaction.
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Why do we Need IBAN?
In a sense, the IBAN serves as a launch pad and landing pad. 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 provided Ana’s bank and her IBAN.
Fred’s bank contacts Ana’s bank to make the transfer request. To locate Ana’s bank, the SWIFT code is used. To find 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 is deposited in Ana’s electronically.
The IBAN 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.
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How do I Locate my Bank's SWIFT Code?
SWIFT codes are essential, 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 worldwide. But the most straightforward way to get the code is to ask your bank. Many also have their codes listed in the international banking section of their website. SWIFT codes are essential to have available for anyone conducting regular international transactions. If you use a third party like EBANX, they are an excellent resource to ensure smooth cross-border business and can help with elements like SWIFT codes.
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