At Bruc Bond we are experts in international payments. It’s in our blood. We do know that not everyone shares our passion for the intricacies of cross-border transfers, standardised codes and payment specifications, and that’s ok. Not everyone needs to share our enthusiasm. But we do think that even if you’re not planning to become a master of international banking, it’s a world everybody should know a few things about. That’s why we’re starting this introductory series where we’ll go deep into the complexities of international payments.
Over the coming months we will explore the differences between the world’s different payment systems, see how they interconnect and discuss their advantages. To start, we’re going to go over a few terms to hopefully clarify some confusion.
International and cross-border payments
These two terms are often used interchangeably to refer to what is essentially one thing: payments that cross national borders. Cross-border or international payments can travel a convoluted road to reach a destination. A payment within the eurozone could be send over Europe’s SEPA network or one of the other clearing mechanisms on the continent, but most transactions don’t have such easy means readily available. A payment from the UAE to Belize, for instance, will likely go through the USA. In practice, that means that such a payment would need to comply with US laws and regulations, even if these have no equivalent either in the source country or the destination.
FX
FX (Foreign eXchange) is sometimes used to refer to international or cross-border payments, but it typically means only the exchange of one currency for another denomination.
Correspondent banks
You’ll sometimes see us refer to “correspondent banks”. These are the financial institutions through which your international transfers are sometimes made. Think of them as the bank used by your bank. Banks usually hold accounts with larger financial institutions. These are used to facilitate the transfer of funds to other banks that your own financial provider doesn’t have a direct agreement with, typically across international borders.
SEPA
The Single Euro Payments Area is a system initiated by the European Union to simplify banks transfers denominated in euro. This system allows very fast transfers between all participating countries.
SWIFT
The Society for Worldwide Interbank Financial Telecommunication refers to a communication network that enables financial institutions around the world to send and receive messages about financial transactions, letting each other know how much to debit and credit and in what accounts.
BIC
The Bank Identifier Code refers to the unique codes used in the SWIFT network to identify particular banks.
IBAN
An International Bank Account Number is the long-string identifier used in the SWIFT network to designate individual accounts.
Routing Number
A routing number is an additional piece of payment instruction used in particular territories, mostly as a historic holdover. In the USA they are called “routing numbers”, while Australia has the “BSB Code”, China the “CNAPS”, and India boasts its own “ISFC Code”.
There are many more terms and definitions that are essential to know when dealing with international payments and we will be going deeper into them in our next introductory articles. Over the coming months we will explore this topic in much greater depth. But for now, these are, shall we say, the bare necessities of cross-border funds flows.