What is a SWIFT code and How does it works? (with Example)

What is a SWIFT code?

A SWIFT code, or BIC—Bank Identifier Code, is a standardized method of naming banks and financial institutions around the world. The title is an acronym for Society for Worldwide Interbank Financial Telecommunication. These codes are an integral part of the transfer of money around the world, making sure money reaches the right bank and branch.

Used by over 11,000 financial institutions in 200+ nations, the SWIFT network forms the backbone of the global banking system. While SWIFT does not actually transfer funds, it securely delivers standardized payment instructions between banks, thus enabling faster and more accurate cross-border transactions.

Why Does SWIFT Codes Matter?

Precision is key when it comes to transferring money internationally. A SWIFT code gives the sending bank precise directions on where to send the money. If this code is incorrect or missing, your transfer may be delayed, rejected, or misdirected. This can lead to extra charges and much frustration.

SWIFT codes also enable the settlement process among banks. If the banks were directly linked to one another, the transfer could occur nearly in real-time. Otherwise, a correspondent (intermediary) bank will act to finalize the transfer. In either case, the SWIFT code enables the transaction to occur securely and in the correct way.

How does a SWIFT code function?

A SWIFT code is an international messaging code for banks. It doesn’t transfer money itself—rather, it securely transmits payment instructions over a standardized network. Here’s a step-by-step explanation of how it works:

1. Initiating the Transfer

When you (the sender) make an international wire transfer, you give your bank:

The recipient’s name

Their account number (or IBAN)

The SWIFT code for the recipient’s bank

This SWIFT code instructs your bank precisely where to deposit the money.

2. SWIFT Message Generation

Your bank sends a standard SWIFT message, for example, the MT103 customer payment message, with the following:

Sender information

Recipient’s bank details and account details

Transfer amount and currency

Any specific instructions

This message is structured by strict international SWIFT protocols.

3. Delivering the Message via the SWIFT Network

Your bank sends the message over the secure SWIFT network to the receiving bank. This network is not only encrypted and secure but also most trusted.

If there is a direct correspondence, or “correspondent banking relationship,” between the paying bank and the sender bank, the message is sent directly.

Otherwise, the message may pass through intermediary (correspondent) banks to enable the transaction.

4. Processing by the Recipient’s Bank

Once the recipient’s bank receives the SWIFT message,

It verifies the details.

Credits the amount to the account of the recipient (if everything goes okay).

The recipient is informed, as necessary.

This normally takes 1–5 business days, depending on countries, currencies, and banks involved.

Summary of How SWIFT Code Works:

1. You provide your bank the SWIFT code of the recipient.
2. Your bank initiates a SWIFT message with the payment details.
3. It is sent securely across the SWIFT network.
4. The recipient’s bank receives and processes the message
5. The funds are paid into the beneficiary’s account.

SWIFT Code Structure and Format

A SWIFT code is 8 or 11 digits long and in a specific format:

Bank Code (4 letters): Refers to the bank.

Country Code (2 letters): Represents the country in which the bank is situated.

Location Code (2 letters or numbers): Identifies the bank’s head office or branch.

Branch Code (3 numbers or letters, optional): Identifies the branch in particular. If left blank, the code normally corresponds to the main office of the bank.

Example:

Let’s dissect this SWIFT code: UNCRITMMXXX.

UNCR: Bank code (UniCredit)

IT: Country code (Italy)

MM: Milan location code.

XXX: Branch code (principal branch)

This structure enables worldwide systems to route money with unmatched accuracy.

How to Locate Your SWIFT Code?

There are many simple ways to find a SWIFT code:

1. Online Banking: Banks display SWIFT codes on their website.
2. Bank Statements: Typically printed on paper or electronic statements.
3. Official Bank Website: Check your bank’s website—SWIFT codes will typically be in the FAQs or international payments section.

For help, go to your bank in person, phone them, or email them.

Online search engines can be used by typing the bank’s name and country into safe SWIFT code listings.

Always check the SWIFT code prior to making a transfer to avoid any inconveniences or delay.

SWIFT Code, IBAN, and Routing Number

Below is how SWIFT codes compare to other commonly used bank codes:

SWIFT Code vs. IBAN:

A SWIFT code identifies the bank.

An IBAN (International Bank Account Number) is a specific bank account.

To make payments to IBAN-recipient nations, especially in Europe, you will usually need both.

SWIFT Code vs. Routing Number:

A routing number is utilized for domestic transactions in the United States.

Foreign transactions are facilitated with a SWIFT code.

SWIFT Code vs BIC

These are interchangeable words. SWIFT code is nothing more than another name for Bank Identifier Code, or BIC.

A sample of a SWIFT code.

Here’s a real-world example:

Bank: UniCredit Banca

Country: Italy

City: Milan

SWIFT Code: UNCRITMMXXX

This code serves to identify UniCredit’s principal branch located in Milan. Should you wish to transfer funds to a customer at this bank, this is the code you would employ to guarantee that the money arrives at the correct destination.

When would you need a SWIFT Code?

A SWIFT code is needed when you are receiving or sending international wire transfers among banks. Below are the most common scenarios where a SWIFT code is needed:

1. International Money Transfers

When transferring money to a foreign individual, the recipient bank will require a SWIFT code to ensure that the money reaches the intended bank and branch.

Receiving Money from Abroad: If the person is sending money to your account from abroad, they will require your bank’s SWIFT code.

2. Business Transactions

Cross-Border Transactions: Businesses that remit foreign suppliers, partners, or freelancers execute cross-border transactions through SWIFT codes.

Global Payroll: Firms with dispersed staff often use SWIFT codes to make cross-border salary payments.

3. International Trade and E-commerce Import/Export Payments: International business activities need SWIFT codes, e.g., paying supplier, customs authorities, or logistics partners.

4. Foreign Investments and Transfer of Accounts

Moving Money Between Foreign Accounts: If you’re moving money between personal bank accounts in foreign nations.

Receipt of Foreign Investment Proceeds:

 Foreign investment proceeds must be remitted using SWIFT codes. 

Frequently Asked Questions

1. Is a SWIFT code synonymous with a BIC?

In reality, the expressions BIC and SWIFT code are synonymous for one and the same organization. 

2. Where can I locate my bank’s SWIFT code? 

Check your internet banking website, check your bank statement, or check your bank’s website. Or, you can phone your bank or use a reliable online look-up service. 

3. What do I do if I use the incorrect SWIFT code? 

Transfers with incorrect SWIFT codes are delayed, refused, or sent to the wrong destination. The money can be refunded by the bank, but it will take days or weeks and might incur charges. For local transfers, however, no SWIFT code is required. No. International payment alone uses SWIFT codes. Domestic payments (such as within the U.S.) utilize routing numbers. A SWIFT code is eight or eleven digits. An 8- or 11-digit code is a SWIFT code. Eight digit codes represent the head office; eleven digit codes contain an additional branch code. 

4. Will a SWIFT code find an account number? 

No. SWIFT codes locate a bank and branch—not an individual’s account. You will require the account number (or IBAN) to finalize a transfer. 

5. Is the SWIFT system secure?

SWIFT is a highly secure international messaging system used by banks to communicate transaction instructions. It encrypts and authenticates each message, thus reducing fraud and errors to a minimum.