What is the Difference Between Swift Code and Routing Number?

When it comes to transacting safely, the banking industry applies some unique techniques to establish communication amongst themselves. Essentially, these techniques allow financial bodies to talk about confidential and sensitive information without doing any damage. These techniques mostly involve identification codes and unique numbers that are assigned to an organised system.

If you are familiar with the identification codes and numbers used by financial institutions, you should have an idea of what SWIFT codes and Routing Numbers mean. In this article, we will explain what these two identification techniques are, shedding more light on the popularly asked question - what is the difference between swift code and routing number.

What is Swift Code?

SWIFT is short for “Society for Worldwide Interbank Financial Telecommunication” and is a Belgium-based cooperative society. Essentially, this body executes operations related to business and financial transactions. It was established to provide a platform through which financial transactions can be performed, especially for International payments.

The SWIFT network is so wide that it facilitates the transfer of funds, securities, as well as Treasuries between more than 10,000 financial institutions located in over 200 countries globally.

Generally, SWIFT codes consist of a long string of eight to 11 unique alphanumeric identifiers. These identifiers inform the system of how it can handle each transfer made. Essentially, they serve as the digital address of each financial institution. The SWIFT system makes use of special codes to locate where a transfer is coming from, its destination, and how the transfer will get to its destination.

This code is made up of the bank or financial institution code, country code, location code, as well as branch code. Generally, it comes in this format:

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

The branch is usually optional and may not always be included. Hence, the SWIFT code characters are made up of a total of 8 characters or eleven characters.

History of SWIFT Codes

SWIFT code usage can be classified under the telecommunications industry and its major impact was first felt in the banking industry in the mid-19th century. During this period, the newly invented electric telegraph incited a major fuss in the market. This invention offered higher security at cheaper prices and faster communication. Thus facilitating the invention of other communication networks that were cheap, reliable, and have better security. In no time, Telex was invented using better network and routing technology.

Telex networks were just like teleprinter networks that were used on already existing telegraph and telephone connections. However, it had too many limitations to its operating system. Telecom could not function on codes like SWIFT and this slowed processing time, causing a higher usage of manual labour. Since the need for manual labour was higher, there was more likely to be human errors during processing. Also, Telex was not secure enough for processing, but financial institutions still had to make use of this unreliable communication system until the invention of SWIFT codes.

On the 3rd of May, 1973, SWIFT was established as a non-profit organization and had its headquarters situated in Brussels. The first design of this network system was finished by the end of 1974 and SWIFT accumulated a total number of 12,000 messages every day soon after it was established. This number was enormous, considering the time and age the organisation was established.

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How does SWIFT Code Work?

SWIFT mainly functions as a message carrier or transporter. Although SWIFT is a crucial part of the day-to-day functioning of many financial institutions, it is not considered a separate institution. It is not a bank or a financial organization since it does not help with monetary transitions or clearing settlements. Rather, SWIFT just helps by providing a safe messaging network, which local and international financial institutions can use to communicate.

Through this network, financial institutions can send any information vital to the seamless operations of monetary transactions. This information generally includes manual instructions and other details concerning financial transactions. Hence, SWIFT is just a message transporter that is secure, efficient, reliable, and extremely powerful.

Essentially, SWIFT does not keep track of any financial information that financial institutions share on the network. It just functions on a network that stores and forwards all the messages supplied to it. This system helps high-level financial institutions by offering them a platform that allows them to speak freely about the details of their financial transactions safely, without any fear of a potential breach. Therefore, SWIFT’s popularity and reputation depend on its client’s trust in its credibility, confidentiality, quality, and integrity.  

The scheme by which a unique SWIFT code is allotted to different financial institutions is created and regulated by the members of SWIFT.

Read Also - How to Find my SWIFT Code for a Bank

What is a Routing Number?

A routing number is a special nine-digit code that is usually printed on the bottom part of checks. This code helps to identify the bank or financial institution from which the check is drawn. Usually, the routing number is printed in both a fraction form and a special MICR(magnetic ink character recognition) form.

The MICR form of routing numbers is printed with electronic ink or magnetic ink that allows machines to easily read them. Essentially, this makes the process time-efficient as it helps to hasten the processing of the checks.

The whole idea of Routing numbers was first developed in 1910 by the American Bankers Association(ABA). Essentially, it was created to provide a unique method for sorting and delivering checks to the right drawer’s bank. Also, it was built to facilitate the necessary monetary transactions. Hence, the numbers are also called ABA numbers. The routing number is made up of three major parts:

• First 4 digits - This represents the Federal Reserve bank routing number
• Next 4 digits - This represents the American Bankers Association institution identifier (the special bank code).
• The last digit - This represents the check digit

Generally, the first four digits of a routing number tell you a lot about the kind of financial transaction. Let’s give you a breakdown of what these Federal reserve routing numbers really mean. The first 2 digits range between 00 to 80 and are generally not used in consecutive order.

• 00 — This number is used by the Government of the United States
• 01-12 — These are the numbers that correlate with the 12 federal banks in the United States.
• 21-32 — These routing numbers are used mostly by thrift financial institutions, i.e savings banks.
• 61-72 — These numbers are used for just for special purpose financial transactions that do not involve any bank. They are also known as Electronic transaction Identifiers(ETIs).
• 80 — This routing number is used just for only traveller’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.

History of Routing Numbers

The history of routing numbers dates as far back as 1910. In December 1910, the American Banker’s Association set up a meeting in Chicago with all clearing house managers. The conclusion of this meeting resulted in the setting up of a committee. This committee had a duty to select and allot a unique number or a code that can be broken down to see the exact details of a check. The prefixes of these unique codes would describe the location, while the suffixes would denote the banks that are corresponding to the stated location. This marked the beginning of routing numbers.

The numbers of this code would be allotted with a unique nomenclature pattern. For instance, the oldest banks with the highest population were allotted the lower prefixes, making the whole process unique.  

The ABA then requested to make use of a common directory that gives instructions to banks and employees on how they can process checks. For this reason, a book called ‘Key to Numerical System of The American Bankers Association’, was published by Rand McNally & Co. The name of this book was later abbreviated to be ‘The Key’.

What is the Difference between Swift Code and Routing Number?

The major difference between swift codes and routing numbers is the type of payment - local or international. If the payment made stays domestic, the routing number will be applied. However, if the payment is crossing borders (international), then the SWIFT code will be used.

Also, routing numbers are majorly used to check verifications, execute wire transfers, and perform ACH transactions. The SWIFT facility, on the other hand, allows banks and financial institutions to receive only foreign wires without any hassle.

In addition, the routing number is made up of nine digits, while the SWIFT code is solely alphanumeric. For instance, the routing number to represent a Chase account can be 021000021 while the SWIFT code can be CHASUS33. Other differences between SWIFT and routing numbers include:

1. SWIFT codes are generally broken down into four main categories. Each of these categories correlates with a bank code, a specific country code, the location code, as well as an optional branch code. On the other hand, the SWIFT code is made up of less intricate categories.

2. A SWIFT code consists of just 8 characters or 11 characters because of the branch code, which is optional. On the other hand, a Routing number consists of just 9 characters. All of its characters are digits.

3. SWIFT codes were invented in 1973, however, routing numbers came into existence in 1910, which is much earlier than SWIFT.

4. The routing number is used to identify a bank within the country, while the SWIFT code generally identifies international banks.

5. Carl Reuterskiöld was the founder of SWIFT codes and which was founded in Brussels. On the other hand, ABA founded the whole system of routing numbers and established its headquarters in Illinois.

Wrapping up

Although there are numerous factors that differentiate the both, the key difference between swift code and routing number is the kind of payment. While the routing number is used locally, SWIFT codes are used during international remittance. Nevertheless, when it comes to money transfers, whether done nationally or internationally, both of these codes are vital tools. They ensure that the fund transfer moves successfully from one place to the other securely, efficiently, quickly and accurately.

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