An international bank account number, most commonly referred to as an IBAN, is a number that identifies an international or overseas bank account according to a standardized international numbering system.
Each IBAN follows a specific series of digits designed to give identifying information about the account. However, an IBAN is not a replacement for that account’s actual bank account number. The IBAN is simply used to provide clarifying information that may be necessary or helpful when identifying the source or recipient of payments from overseas.
An IBAN is formatted as follows:
First two characters: A code identifying the country of origin of the bank account
Second two digits: Additional identifying numbers
Up to 35 alphanumeric characters: Additional characters identifying the account
The IBAN system was originally developed in Europe in an effort to make transactions involving overseas bank accounts more simple, straightforward, and clear. IBANs can also be used as a verification method, ensuring that the details of the transaction are all correct before an attempt to process the transaction.
Overall, there are three key functions of an IBAN:
Allow banks and financial institutions to instantly identify the country where the receiving bank is located,
Allow banks and financial institutions to identify exactly which account the transaction will be sent to, and
Double-check the accuracy of the details involved in the transaction
While the exact format varies by country, IBANs contain the following identifying information within their characters:
Check digits, designed to validate the destination
Bank code, identifying the specific bank
Branch code, identifying the branch where the account is held
Account number, signifying the specific account where the transaction will be deposited
Here are a couple of hypothetical international bank account numbers from a few different countries:
Norway: NO 93 4822 2357 3225454
Albania: AL 47 9889 5111 0021 0033 9988 3222
Before identifying international account numbers such as IBANs were standardized, payments that took place across countries would often end up with money deposited into the wrong account — a serious matter that could take months to be resolved and cost extra money along the way.
In response, the International Organization for Standardization proposed IBANs, which were later approved and put into practice in the late 90's. Since their introduction, trans-national errors relating to money transfers have been reduced to less than 0.1% of total transactions.
While IBAN is used by many countries as a form of transaction identification for overseas transfers, it’s not the only system of such codes or even the most widely used.
The SWIFT system (Society for Worldwide Interbank Financial Telecommunication) assigns each bank or financial institution a unique code consisting of either eight or 11 characters. To date, it is the most widely used method for verifying international fund transfers. Its continued widespread use is due largely in part to the fact that the SWIFT system allows banks to share more financial data, including account status, debit and credit figures, and other details relating to transfers.
In general terms, a SWIFT code identifies a specific bank in an international transaction while an IBAN identifies an individual account. Both SWIFT and IBAN codes are essential tools in the international financial market, allowing individuals and businesses to successfully and smoothly make money transfers overseas without significant delays or mistakes.
For successful international banking, individuals and businesses must be able to access both SWIFT codes and IBANs. Which identifying code is required for a specific transaction will depend on the receiving bank, the sending bank, and the countries of origin and deposit.
Currently, the United States is not one of the nations that uses the IBAN system or IBAN codes. Banks in the US use what are known as ABA routing numbers for domestic transfers and SWIFT codes in the case of international transfers. Currently, there does not appear to be any plans for the U.S. to adopt the IBAN system in the near future.
That said, this does not mean that U.S. banks don’t deal with the IBAN system on a regular basis. Anytime a U.S. bank or individual wants to complete a transfer to an overseas account in a nation where the IBAN system is used, they need to have access to their IBAN in order to accurately complete the transaction.
Another commonly used term in international banking transactions is BIC (bank identifier code). So, how do bank identifier codes differ from SWIFT and IBAN?
Essentially, BICs operate within the SWIFT system. Think of it this way: the SWIFT network is the network and system of codes used for international transfers in certain countries, while the BICs are the codes themselves. BICs are sent on the SWIFT network, and the terms ‘BIC’ and ‘SWIFT code’ are often used interchangeably. However, BICs and SWIFT codes are often different codes, though they both consist of a mix of letters and numbers and tend to be between eight and 11 characters long — and each can be used in place of the other.
IBANs identify the country of business and specific account number for a bank and account holder. Meanwhile, a BIC adds three even more specific pieces of information to the equation. These include the bank code, country code, and an identifier that tells the processing network the specific branch where the account is held.
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