Swift Code vs. Routing Numbers

Introduction

The banking industry has several techniques to carry out secure transactions and provide a means of communication amongst the financial bodies to discuss confidential information without any damage. This is done with the help of identification codes and numbers that can be allotted with an organized system. Today, we will look into two of these identification factors that help in business transactions around the world: SWIFT codes and Routing Numbers.

The key difference between a SWIFT code and a Routing Number lies in the context of its utility. A SWIFT code is generally needed for all business transactions done internationally regardless of the country you reside in. A Routing number is needed in case of any domestic or international transactions if you reside in the United States. So, in simple terms, if you desire to make a transaction to the United States from a foreign country or if you live in a foreign country and wish to make a transaction to the United States, you will need a Routing Number, in addition to a SWIFT code. However, in case of any domestic transactions in the United States, the Routing number would be sufficient.

Difference Between Swift Code and Routing Numbers in Tabular Form

Parameters of Comparision	Swift Code	Routing Numbers
Definition	A unique identification code that is assigned to financial institutions that provides identification in the international market.	They are made of 9 digits that help in the identification of a financial institution, specifically in the context of processing checks.
Year of Development	1973	1910
Founder	Carl Reuterskiöld	American Bankers Association(ABA)
Requirement	Generally required for all international financial transactions around the globe.	Only required for domestic transactions in the United States and any international transaction to/from the United States
Length	They contain either 8 or 11 characters in total, all of the letters.	They consist of 9 characters in total, all of them digits
Acquirement	SWIFT code can be found on a bank statement, even via online banking.	Routing number is printed on a check and can also be generated using an appropriate generator online.

What is Swift Code?

SWIFT stands for Society for Worldwide Interbank Financial Telecommunication. SWIFT is a cooperative society based in Belgium that primarily carries out operations related to finance and business transactions. The company was initially created with the purpose of providing a platform or a network through which these transactions could be performed, specifically targeting international payments. Most finance bodies with large customer bases turn to the company for their financial needs through the company’s software and the world-famous ISO 9362 Business Identifier Codes (BICs). ISO 9362 is an identification code for one of the standard formats of a BIC. A BIC is a unique code that acts as a special identifier for every financial institution. Each BIC comprises a -

Bank code - 4 characters
Country code - 2 characters
Location code - 2 characters
Branch code - 3 characters

The branch is considered optional and may or may not be included always. Thus the total number of characters in a SWIFT code amounts to either 8 characters or eleven characters.

However simple the definition might seem, it is very easy to get confused while understanding the purpose of SWIFT and the function of SWIFT codes. While many assume there is a very close relationship between the Finance market and the industry with globalization in consideration, very little population actually understands the system and the interaction between the two concepts. To realize this infrastructure fully, let's dive deep into the history and the function of SWIFT codes.

Operation of SWIFT codes

SWIFT chiefly works as a message transporter or a message carrier. While SWIFT is a part of many financial institutions and plays a crucial role in day-to-day business transactions, it is important to note that SWIFT cannot be considered an institution itself. It is neither a bank nor a financial body as it does not serve monetary transitions or clear settlements. Instead, it provides a secure messaging network through which financial institutions, local and international, can communicate through. Information crucial to the operations of monetary transactions could be sent through this network, such as manual instructions and details regarding the operations. Thus, it is merely a messenger that is powerful, secure, trustworthy, and efficient.

SWIFT does not keep track or records of any financial information that is shared in the network but only operates on a system that stores and forwards the messages that are intended. It helps High-level institutions by providing them a platform to discuss the details of their transactions safely, without the fear of any potential leakage. Thus SWIFT’s reputation and popularity lie in its customer’s trust in its integrity, reliability, confidentiality, and the quality of its secured network. The scheme of allotting a unique SWIFT code to financial institutions is developed and maintained by the members of SWIFT.

History of SWIFT codes

The use of SWIFT codes falls under the category of the telecommunications industry and major impacts in the industry in association with the banking industry can be traced back to the mid 19th century when the invention of the electric telegraph caused a major stir in the market. This innovation enabled higher security for lesser prices and quicker communication. Thus started the race of inventing networks with better security and the purpose of making them as cheap and reliable as possible. Soon, with better routing and network technology, Telex was brought to existence. Telex networks could be described as teleprinter networks that were operated on existent telegraph and telephone connections. Telex, however, has many hindrances to its operating system. Telex did not operate on codes as SWIFT does and this led to higher manual labor and slowed processing times. The higher the need for manual interaction, the higher is the potential for human errors. In addition to this, Telex had many security concerns. Unfortunately, institutions across the globe had to use this unreliable system before SWIFT codes were brought to existence.

While the idea of creating a better and common platform that would address all the problems generated in the operation of Telex was generated and discussed widely during the 1960s, It was only during the early 1970s that the concept gathered momentum and there were enough sponsors to establish the body. Throughout the period of 3 years, the idea began to take institutional form and on May 3rd, 1973, SWIFT was founded as a non-profit organization with its headquarters located in Brussels. The initial design of message- network system was completed by the end of 1974 and by the end of the decade, SWIFT had a volume of around 12,000 messages per day, a number enormous for the time and age of the company.

What is a Routing Number?

Routing numbers can be described as a unique nine-digit code that is to be printed on the bottom of the checks, typically left, to help identify the financial institution from which it is drawn. We can observe that the font used to print the series of numbers, i.e., The routing number, the account number, and the check number, at the bottom of the check is different from the others. While routing number appears in both fraction form and a MICR(magnetic ink character recognition) form, both these forms do not differ considerably in the information they pass. The MICR form is printed using magnetic ink or electronic ink that machines can easily read. This helps process the checks faster and proves to be time-efficient.

The idea of Routing numbers was developed by the American Bankers Association(ABA) in 1910 in order to provide a comfortable technique for sorting and delivering the checks to the appropriate drawer’s bank and facilitate the needed monetary transactions. The numbers are thus, also referred to as the ABA numbers.

History of Routing Numbers

Although there existed an idea passing around of a common identification to provide convenience for the processing of checks around the early 1900s, many banks have often kept disagreeing and swayed farther from reaching a common ground. In the month of December 1910, the American Banker’s Association gathered all the clearing house managers and set up a meeting in Chicago. Upon the conclusion of the meeting, a committee was formed to choose and allot a specific number or much rather a code that can be debugged/broken down to find the details of the check. The prefixes of these codes would represent the location and the suffixes would represent the banks corresponding to that location. The numbers would be allotted with a certain nomenclature pattern, say, The oldest banks and the cities with the highest population indices were assigned the lower prefixes, and so on. On the request of the ABA to use a common directory that instructs the employees and the banks on how to process checks, Rand McNally & Co. published a book called ‘Key to Numerical System of The American Bankers Association’ that was also abbreviated to be called as ‘The Key’. The headquarters of the company was then moved to Illinois in 1952.

Breakdown:-

The routing number comprises three main parts:

First 4 digits - Federal Reserve bank routing number
Next 4 digits - American Bankers Association institution identifier i.e., the unique bank code.
The last digit - The check digit

The first four digits of a full routing number can also tell a lot about the financial transaction. So let us break down the meaning behind these federal reserve routing numbers. The first 2 digits range from 00 to 80 and are not used in a continuous order.

00 - used by the government of the United States
01-12 are the routing numbers that correspond to the 12 federal banks in the states.
21-32 are used by thrift institutions such as savings banks.
61-72 are used for special purpose transactions that do not involve banks. These are also called Electronic transaction Identifiers(ETIs).
80- this number is used for only traveler’s checks

There are several banks and offices that process your check when it is drawn. The third digit of the routing number sequence depicts the processing center that is assigned initially to the bank. The fourth digit will range from 1 through 9, each number corresponding to one of the 12 federal reserve districts. If the fourth digit is zero, it indicates that the bank is located in Federal Reserve city proper.

Main Differences Between Swift Code and Routing Numbers in Points

SWIFT codes are used commonly all around the globe for any international transaction to be made. The requirement of a SWIFT code does not depend on the location of the user if it is established that it is an international transaction. Routing numbers, on the other hand, are specific to the United States. If the user is residing in the United States needs to make an international transaction or if the user living in any other country decides to make a transaction to the United States, then he will require a routing number along with the SWIFT code. However, any domestic transaction corresponding to the States will only require a Routing Number.
SWIFT codes are broken down into four categories and each of the categories corresponds to a bank code, country code, location code, and an optional branch code. Whereas, the categories a routing number is made of are much more intricate than that of a SWIFT code. The first four digits of the number itself represent four different categories that help deliver the check it is printed on.
A SWIFT code is made of 8 characters or 11 characters due to the optional branch code. All of these characters are letters whereas a Routing number is made of 9 characters. All of these characters are digits.
SWIFT codes came into existence in 1973 while routing numbers came into context much earlier in 1910.
Carl Reuterskiöld founded SWIFT codes in Brussels while ABA founded the system of routing numbers and set up headquarters in Illinois.

Conclusion

Both SWIFT codes and Routing numbers are used for the purpose of identification in the operation of business transactions in the finance industry. While one provides a means to transfer information regarding the transactions such as details and instructions corresponding to the transaction, the other only provides identification to locate the branch from where the check must be drawn in order to debit the amount in the drawer’s bank. Every citizen or a financial institution citizen, while banking internationally or with regard to the United States, must carry with them the information regarding these identification codes and numbers to carry out secure transactions.

References

Introduction
Swift Code vs. Routing Numbers
Difference Between Swift Code and Routing Numbers in Tabular Form
What is Swift Code?
Operation of SWIFT codes
History of SWIFT codes
What is a Routing Number?
History of Routing Numbers
Main Differences Between Swift Code and Routing Numbers in Points
Conclusion
References

Difference Between Swift Code And Routing Numbers

Introduction