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Published: 20 September 2018
If you transfer money to someone who has a bank account in the United States, you will need to know either their BIC/SWIFT code or their ABA Routing number.
But what are these codes and why are they needed?
The BIC/SWIFT code and ABA routing number are both used to identify which bank the recipient holds an account with. The difference is that the BIC/SWIFT code is used when transferring the money internationally and the ABA routing number is used when transferring the money domestically in the United States of America.
Unfortunately, sometimes someone based in the United States will provide you with their ABA routing number even if you need to make an international transfer. If this happens, you can use a third-party transfer agency, like Instant Global Payments, to help. At Instant Global Payments we will let you do cross border payment with either type of bank details.
Author:
Henry Newton
Business Analyst
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International Payments (BIC/SWIFT)
To process international payments, banks use the Society for Worldwide Interbank Financial Telecommunications (SWIFT). SWIFT is a member-owned cooperative that links over 11,000 financial institutions across over 200 countries.
SWIFT issues each member with a unique Business Identifier Code (BIC) which can be used to identify which banks are involved in each transaction. Each BIC code is 8-characters or 11-characters long.
- Characters 1-4: identify the bank
- Characters 5-6: identify the banks country
- Characters 7-8: are the location code
- Characters 9-11: identify the bank’s branch
Domestic Payments (ABA Routing Number)
To process domestic payments, banks route payments through the United States Federal Reserve Bank. The Federal Reserve Bank uses ABA routing code to determine which bank the recipient holds an account with; essentially the same as a BIC/SWIFT code except on a domestic level.
The American Bankers Association (ABA) issues each bank with a unique code which can be used to identify that bank when processing transactions.
The ABA routing number is a 9-character code with the following structure
- Characters 1-4: Federal Reserve Routing Symbol
- Characters 4-8: ABA Institution code
- Character 9: Check digit
The Federal Reserve Routing Symbol is used by the Federal Reserve to determine how to process the payment and as mentioned above, the ABA institution code identifies the bank.
Lastly, the check digit is used by banks to ensure all the other digits were entered correctly. How does one digit check that the other eight digits were entered correctly? Well, it uses the Luhn algorithm (also known as mod 10), which takes each digit puts them into three groups (based on their original position), applies a weight to each group and checks if it is divisible by 10.
Why have different codes?
If both codes essentially achieve the same objective (identifying which bank to send the money to), then why are both still used?
Both are still used today because of the way the underlying systems process the payments.
Price
Transfers using a BIC/SWIFT code are processed individually which can result in much higher costs for the financial institution sending the payment. However, if you use an ABA routing number the payment will likely be processed through the Automated Clearing House (ACH) which will accumulate all the payments over a day and then settle them all in one large bulk payment; this is a lot more cost effective solution for financial institutions.
Ease of Use
Banks in the United States use the ACH because it is cost effective (as mentioned above) and it also enables various capabilities that they use on a regular basis such as processing credit/debit card payments and direct debiting US bank accounts. For banks outside the United States, the compliance complication and costs of connecting to the ACH simply isn’t worth it. This is where SWIFT comes in, it is used to connect the United States banks to the rest of the world.
Choosing the right provider
Regardless of which bank details you are given; Instant Global Payments can help you send money to the United States. We pride ourselves on giving our customers world-class exchange rates, we challenge you to compare the exchange rate we offer you to your current provider, we are confident that we will be offering you a better rate.
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