Macaroni and cheese. Mashed potatoes and gravy. Fish and chips. These are, dare we say it, iconic pairings. (Hey, when your workforce is global, it's undoubtedly dinnertime somewhere, right?)
When it comes to making international payments, the Society for Worldwide Interbank Financial Telecommunications (SWIFT) and international bank account numbers (IBANs) can make a stand-out pair, too.
Never mind the fact that they're made of bits rather than bites. What are SWIFT and IBAN, exactly? And how can they help you pay workers worldwide?
At their core, SWIFT codes enable banks to communicate with each other, and IBANs identify individual accounts. They can be used separately. They can be used together. And they can make international financial transactions safer.
Key takeaways:
- The SWIFT network supports quick communications and can enable international financial transfers in over 200 countries.
- IBAN provides identification codes for individual accounts to make direct international financial transfers.
- Depending on the location of your company, you may not regularly use both SWIFT and IBAN, but each can help you complete global payments compliantly.
What is SWIFT?
International communication has become remarkably refined since Samual Morse introduced the telegraph in 1837. Nearly 200 years later, the speed of global business is increasing almost exponentially. That makes it more critical than ever for companies to be able to send money quickly and securely.
If you've ever made cross-border payments to international vendors or completed payroll for your global team, SWIFT may have made it possible.
A SWIFT code (also called a Bank Identifier Code, or BIC) contains eight to 11 characters that banks use to swiftly route messages to each other. These letters and numbers are presented in a standardized format that makes the string easy to recognize and includes:
- Bank code: Four letters that stand for an abbreviated form of the institution's name
- Country code: Two letters representing the country where the institution is located
- Location code: Two characters, letters, or numbers noting the location of the bank's headquarters
- Branch code: Three letters indicating the particular branch, or XXX if it's the main office
In the end, a SWIFT code looks something like this: AAAA-ZZ-GG-000. This information is in the account details section of your bank statement or on your financial institution's website.
What is IBAN?
Financial institutions use a unique numbering system to indicate the specific bank account receiving funds during an international transaction.
That's IBAN.
The IBAN system is used in over 80 countries, including most European countries and throughout the Middle East and Caribbean. However, countries including Australia, Canada, New Zealand, and the United States do not usually use IBAN for financial transactions.
Virtual IBANs (vIBANs) are relatively new to the landscape. A regular IBAN directs money internationally to a single account. However, With vIBANs, you can use multiple identifiers connected to a master account. Potential benefits include using different vIBANs for individual currencies.
Like SWIFT, the IBAN code format is standardized. IBANs use up to 34 digits to identify accounts in the following format:
- Two letters for the country code
- Two numbers as "check digits" are used for error detection
- Up to 30 alphanumeric characters that form the basic bank account number (BBAN)
Here's a fictional example of what an IBAN would look like in Spain: ES9112345678910111213140.
Generally, this number is on the front page of your bank statement or your bank's website.
Key Features of SWIFT Codes and IBAN
What Are the Advantages and Disadvantages?
There are pros and cons to everything. Using SWIFT and IBAN is no different.
The SWIFT system, for example, is a reliable way for banks to send secure messages to each other and even move money between them. But that reliability comes at a relatively high expense.
Likewise, unique IBANs can be a key to successful fraud prevention, adding another layer of security alongside SWIFT. But like any complex account number, it can be difficult to remember.
vIBANs, on the other hand, have the potential to undercut the basic security supported by using a regular IBAN. The European Banking Authority's recent Report on Virtual IBANs even suggests the format may increase the risk of money laundering.
That said, not using security measures like SWIFT and IBAN absolutely raises the risk of fraud, errors, and potential financial crimes when moving money internationally.
Benefits and Drawbacks of SWIFT and IBAN
Ultimately, companies that do business internationally will likely use both SWIFT and IBAN at one time or another.
Pay Your Global Team with RemoFirst
Want to simplify the payroll process? Partner with an Employer of Record (EOR).
Whether you work with full-time employees, contractors, or both, we're confident your business and RemoFirst will make a great pair.
RemoFirst manages all aspects of your global team and wraps everything into one streamlined workflow.
We automate time-off requests, annual bonuses, and benefits management, ensure compliance with local laws in over 180 countries, and manage all logistics for international payments to your employees and contractors.
Schedule a demo today to learn how RemoFirst can help you pay your global team.
