Submission Date: 26:11
Ken, from Nigeria, just got employed by a tech company abroad. The company welcomes diversity and wants to give everybody equal opportunities. Aside from offering competitive pay, Ken is also allowed to choose what payment method he would like.
His options are SWIFT or ACH.
But he doesn’t know what these are and has to spend hours looking at the upsides and downsides of both. If you’re in the same shoes as Ken or you desire this kind of shoes, you’re in the right place.
The Technicality of Receiving USD in Nigeria
Digital activities are generally complex, from searching the Internet to making online payments. However, some activities are more complex than others.
Take receiving USD, for example. It’s not all about giving your sender the right details. There’s also the aspect of being in a supported region and meeting legal requirements.
Moreover, you may be concerned about exchange rates when your funds arrive. You want to wait for rates to climb during a fluctuating season. You also want to be sure of your local currency withdrawal.
This makes receiving USD quite technical.
But there’s more to it. That has to do with the payment option. In the next section, we detail the two options available for USD transfers.
Learning about SWIFT and ACH will remove much of the technicality, helping you make the right decisions for incoming USD payments.
What are SWIFT Transfers?
SWIFT transfers make use of the SWIFT network. This is a special network that facilitates international transactions, otherwise called wire transfers. Simply put, all SWIFT transfers are international or wire transfers.
So how does a Swift (Society for Worldwide Interbank Financial Telecommunication) transfer work?
Imagine a customer walks into their local bank branch. They head to the counter, collect the necessary form, and initiate a SWIFT transfer. They intend to send money from their US bank account to a friend’s account in Nigeria.
Upon receiving the properly filled form, the bank begins processing the customer’s request.
This request will involve communication between banks in different countries. The communication happens over the SWIFT network. However, there’s no actual movement of funds.
Now you might be wondering what is being transmitted on the SWIFT network.
The answer is an order. You see, the SWIFT network is used to communicate orders securely. When a bank receives a wire transfer request from their customer, they contact the receiver’s bank through the SWIFT network and send them a payment order.
This payment order verifies that the request is authentic.
The receiver’s bank immediately processes this order and releases the funds.
What are ACH Transfers?
ACH transfers make use of a dedicated internal network. They involve the actual movement of funds, unlike what is gotten with SWIFT networks.
Moreover, ACH transfers can serve customers of a particular bank. They can also serve customers of different banks. The catch, however, is these transfers are mostly available within the US.
Non-US banks are excluded from the network backbone of ACH transfers. That eliminates the option of international money transfers. By implication, ACH transfers have to be between one US bank and another.
So how does an ACH or Automatic Clearing House transfer work?
Simply, the payer sends a transfer request to their bank accompanied by the receiver’s information. The bank collects this information, stores it along with a batch of similar requests, and processes all transactions at the same time.
ACH transfers can also be made through online banking apps. In this scenario, the sender’s bank sends the payment to ACH network operators. This operator routes the same to the receiver’s bank.
Finally, the bank receives the instructions and makes the payout.
Components of SWIFT Transfers
SWIFT transfers have some important components. If you’re hoping to initiate one of these, take note of the following.
The requirements are:
The sender’s and recipient’s bank account numbers and bank’s SWIFT code
The sender’s and recipient’s names and addresses
The currency and amount being transferred
The reason for the transfer
Any additional information required by the sender’s or recipient’s bank
Next, let’s talk fees. Fees are an important component of any transaction. For SWIFT transfers, users get a fast, high-end service, and a correspondingly significant charge.
Components of ACH Transfers
ACH transfers are equally unique. They have their own components which make them so. If you’re hoping to make one of these transfers, take note of the following.
Gather the recipient’s banking information: You’ll need the recipient’s name, routing number, account number, and bank account type.
Access your online banking: You can make an ACH transfer through your bank’s website or mobile banking app.
Enter the payment details: Enter the amount you want to send, the payment date, and the currency.
Submit the payment: Once you’ve entered all the required information, submit the payment.
The fee charged for ACH transfers are usually much lower. That is in comparison to fees for SWIFT transfers. You must have guessed the reason for this.
First, ACH transfers do not involve international banks. Second, they are not processed as quickly as SWIFT transfers.
SWIFT vs ACH Transfers
Finally, we’ve come to the section where we compare SWIFT and ACH transfers. If you need a clear-cut table view on these two, you’re in the right place.
| Features | SWIFT Transfers | ACH Transfers |
| Definition | SWIFT transfers make use of the SWIFT network in securely sending orders to authorize payments. | ACH transfers make use of an ACH network to enable payments. |
| Service Region | SWIFT transfers can cover local and international payments. | ACH transfers majorly serve local US payments. |
| Technical components | Technical components are bank SWIFT codes. | Technical components are routing numbers, bank account type (e.g checking), and BIC. |
| Transfer Volume | Recommended for small-size transactions. | Capable of handling bulk transactions. |
| Delivery time | Transactions are usually completed within 1 business day. | Transfers are processed within 1 to 3 business days. However, there’s an option to get same-day delivery. |
| Fees | Higher fees due to urgency in service delivery. | Lower fees due to potential delays in service delivery. |
| Transfer requirements | Regular information except for the SWIFT code of the recipient’s bank. | Lots of new information such as routing number and account type. This increases the difficulty for senders and can increase the chance of an error in the information. |
| Difficulty for senders | Senders might find it difficult to get the SWIFT codes of their recipient’s banks. | ACH transfers may be less difficult considering that account information (such as routing number) is readily available and can be shared between recipient and sender. |
| Difficulty for receivers | Typically not difficult to receive money except for finding a SWIFT code for the sender. Additional documents may be required to verify the receiver’s identity. | The same is true for SWIFT transfers. Finding the sender’s account type and routing number might prove difficult. Additional documents may be required to verify the receiver. |
| Local or international bank support | Supported by banks all over the world. | Mostly supported locally by US banks. In recent times, support for banks outside the US has been noticed. |
| First Use of the technology | The first implementation of SWIFT was in 1977. | The first implementation of ACH appeared in the late 1960s. |
FAQ
Is an ACH Routing Number the Same as a SWIFT code?
An Automatic Clearing House (ACH) is a few-digit number. It identifies domestic US banks. The number helps confirm transfer destinations.
It prevents a scenario where payment is made to the wrong institution.
On the contrary, a SWIFT code is an alphanumeric number. It identifies banks anywhere in the world. Moreover, it is sometimes used in addition to a routing number.
What is the Format of a Routing Number?
The first two digits identify the Federal Reserve closest to the bank. The next set of digits points to a specific bank close to the selected reserve. Finally, the last digit in a routing number is a checksum.
This checksum confirms that the other numbers are accurate.
What is the Format of a SWIFT Code?
In a SWIFT code, the first four letters are an abbreviation. They point to the destination bank. There are two letters following. These are an abbreviation for the country where the bank is located.
Next, two characters are used to indicate the bank’s headquarters. Things get very interesting in the last three characters. This part of the code serves to point to a branch.
