IBAN, SWIFT, BIC for international payments
IBAN, SWIFT, BIC… the world of payments is riddled with acronyms.
To understand what all the above abbreviations mean and when you need or don’t need to use them, let’s look at this article.
What IBAN, SWIFT, and BIC are
IBAN (International Bank Account Number) is an international bank account number. It is a 34-character unique identification number (which may vary by country) used for international payments. The IBAN comprises all of the information required to transfer payments, including the account number, bank name, branch, and country code. The world is developing so quickly that you can open IBAN account online.
The BIC (Business Identifier Code) is a bank-identifying code. BIC is a unique bank code consisting of 8 or 11 characters that is also used to make payments. Each bank has an identification. BIC is also known as SWIFT address or SWIFT code.
SWIFT (Stands for the Society for Worldwide Interbank Financial Telecommunication) is a global network of interbank financial communications. This organization was created in Brussels in 1973 to establish financial transaction rules and protocols. SWIFT operates a secure network that allows financial institutions from 212 different countries to share transaction information.
What are they needed for?
These codes are required for international money transfers and sending communications between banks. Payments must be made to the proper account using IDs that meet international standards. They enable speedier international payments, and the IBAN account structure, for example, is designed to reduce mistakes.
Use in international practice
Originally, IBAN was designed for payments within the European Union. The EU prioritizes the standardization of settlement procedures; hence, when performing transactions inside the EU, IBAN, and BIC/SWIFT codes must be stated on payment papers. This rule applies to all payments and applies to both people and legal companies.
That instance, when transferring funds between banks, IBAN and BIC (SWIFT) is required, although, for individuals, only an account number in IBAN format is sufficient. EU banks have the right not to accept payments if the account number does not meet IBAN criteria, and they can levy a fee for returned payments. As a result, firms frequently use international formats to convey facts on letterheads, contracts, and other documents.
Banks in the United States and New Zealand use SWIFT codes rather than IBANs. The UK similarly utilizes both codes, with the first four characters of the BIC code being part of the IBAN. More than 70 nations already utilize IBAN.
Setting standards for banking financial transactions has emerged as a realistic approach to assure the universal, safe, quick, and simple movement of cash from one jurisdiction to another. If you have an IBAN, the system will quickly identify you, making the transfer speedier and lowering operational risks. If your bank is connected with SWIFT, then you do not have to worry about the security of transactions.
What is the advantage of using IBAN accounts?
One of the most important components when running any business is the ability to make uninterrupted payments, regardless of whether the legal entity operates locally in Europe or not.
Businesses often have difficulties with some banking decisions that have already become traditional. This may be due to the time spent searching and then adapting a bank account to the required transaction types and issuing payments for different countries, counterparties, or currencies. These same problems can also include quite a long time for reconciliation of multicurrency transactions.
Important!
Having an individual IBAN account has become an excellent alternative for various activities, for example, for exporters and various enterprises, international sellers, etc., which receive significant volumes of money transfers in different currencies.
Business preferences when opening bank accounts
Undoubtedly, a lot of work has already been done to increase the speed of transactions, but problems remain. At the international level, they are trying to minimize them and create conditions so that international money transfers and banking services have the same speed as within one state. But to this day, technologies have not yet been developed to bring such ideas to life. Often regional solutions are incompatible with other states.
For this reason, businessmen, freelancers, and legal entities engaged in foreign economic activity are increasingly beginning to open individual accounts using IBAN.
For example, now jurisdictions such as the UK and Lithuania work with direct IBAN.
