Why Doesn't the United States Use IBAN? Deciphering Another System for International Remittances

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The US does not useIBAN because it had already established and widely adopted its own mature domestic payment system—the ABA routing number system—long beforeIBAN became an international standard.

This system supports enormous transaction volumes. For example, the total value of electronic transfers processed through it in 2021 reached an astonishing$86.59 trillion. This deep historical foundation and massive existing scale make the cost and complexity of switching systems extremely high, so the US chooses to maintain its efficient existing infrastructure.

Key Takeaways

• The US does not use IBAN. It has its own system with a long history.
• USmoney transfers require aSWIFT Code and ABA routing number. TheSWIFT Code is used for international identification, while the ABA routing number is for domestic US identification.
• IBAN is a single number containing all information. The US system requires a combination of multiple numbers.
• The US does not use IBAN because changing systems would be too costly. Its domestic system already works very well.
• When sending money to the US, be sure to verify the recipient’s bank SWIFT Code, ABA routing number, and account number.

Unveiling the US Money Transfer System

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While IBAN became mainstream in Europe and other parts of the world, the US already had a vast and efficient internal network. This system may seem complex to first-time users, but once you understand its components, international money transfers become clear and straightforward.

Core Component: ABA Routing Number

The cornerstone of the US domestic payment system is the ABA Routing Number (ABA Routing Number), also commonly known as the Routing Transit Number (RTN).

Thisnine-digit code was born in 1910, introduced by the American Bankers Association. Its original goal was to simplify the processing of paper checks. Bank staff could use this number to quickly sort, bundle, and accurately send checks to the paying bank for clearing.

With technological advancements, the uses of the ABA routing number have long surpassed paper checks. Its core functions are:

• Identifying Financial Institutions: Each number uniquely corresponds to a financial institution within the US. Currently, there areapproximately 22,000 active ABA routing numbers in use in the US banking system.
• Processing Electronic Payments: Whether for small-batch transfers via the ACH (Automated Clearing House) network or large real-time payments via the FedWire wire transfer system, both rely on the ABA routing number to locate the correct receiving bank.

Practical Tip: When sending money to the US from an overseas bank, if the recipient bank requests “FedWire information” or “ACH routing number,” they are usually referring to this 9-digit ABA routing number.

To ensure accuracy,the structure of these nine digits is carefully designed:

International Identification: The Role of SWIFT Code

The ABA routing number is designed for domestic US clearing and does not have global uniqueness. When funds need to cross borders, an internationally recognized “address” is required to guide the direction. This role is played by the SWIFT Code (also known as BIC Code).

A SWIFT Code is acode consisting of 8 to 11 characters that uniquely identifies a bank worldwide. You can think of it as the bank’s “international ID” or “exclusive email address.” When a transfer departs from anywhere in the world heading to the US, the SWIFT network uses this code to first direct the funds to the correct US bank.

• 8-digit code: Points to the bank’s headquarters or main branch.
• 11-digit code: The last three digits specify a particular branch for more precise fund routing.

Therefore, the SWIFT Code is responsible for “delivering” funds to the correct US bank’s door, while the ABA routing number handles routing the funds within the US from the “door” precisely to the specific branch where the final recipient account is located.

Practical Operation: The Correct Combination of Transfer Information

After understanding the respective roles of the ABA routing number and SWIFT Code, we can piece together the complete puzzle of information needed for transfers to the US. Unlike European countries that only require one IBAN number, sending money to the US requires providing a combination of information.

When conducting an internationalmoney transfer to the US,you typically need to prepare the following information:

• Beneficiary’s Full Name: Must match the name on the bank account exactly.
• Beneficiary’s Full Address: Including street, city, state, and ZIP code.
• Bank Name and Address: The full name and address of the bank where the recipient account is held.
• Bank SWIFT Code: Used for international identification.
• ABA Routing Number: Used for domestic US clearing.
• Account Number: The recipient’s specific account number at the bank.

Common Pitfalls for Transfer Failures Many international transfers fail or are delayed due to seemingly minor detail errors. The most common issues include:

• Spelling Errors in Information: Any single letter or digit mistake in the recipient’s name, address, or account number can cause the bank to reject the transaction.
• Number Confusion: Mistakenly entering the ABA routing number in the SWIFT Code field or mixing up the account number and routing number are common errors for first-time remitters.

Before initiating the transfer, be sure to double-check every piece of information with the recipient for accuracy.

In summary, sending money to the US is like a “international + domestic” two-stage delivery. The SWIFT Code is the postal code for the international leg, ensuring the package (funds) reaches the correct country and city (bank); while the ABA routing number and personal account number are the detailed address for the domestic leg, ensuring the package is precisely delivered to the correct street and house number (final account).

IBAN vs US System: Core Differences

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After understanding the composition of the US system, let’s compare its core differences with IBAN (International Bank Account Number). These differences are mainly reflected in structure, history, and user experience.

Structure and Information Integration

The most fundamental difference lies in how information is integrated. IBAN is an “all-in-one” solution, while the US system is a “modular” combination.

A single IBAN number contains all the key information needed to locate an international transfer. It’s like a highly compressed file package containing:

• Country Information: The first two letters represent the country, such as DE for Germany or FR for France.
• Bank and Account Information: The subsequent combination of numbers and letters includes the bank code, branch code, and personal account number.

In contrast, sending money to the US requires providing three separate pieces of information: SWIFT Code (international location), ABA routing number (domestic location), and personal account number (final target). The remitter must obtain and correctly fill in these three data points separately.

Scope of Application and Historical Background

The two systems were born in different eras with different original intentions, which determined their scopes of application.The American Bankers Association launched the ABA routing number system as early as 1910, initially to improve the efficiency of paper check processing. Its design core was to serve the vast US domestic market.

IBAN, on the other hand, is much younger.The European Committee for Banking Standards proposed the IBAN standard in 1988 to unify the chaotic bank account formats across European countries and simplify cross-border payments.

Today,more than 80 countries and regions mandate the use of IBAN for international money transfers, forming a broad international standard. The ABA routing number system, however, remains exclusive to the US.

Practical Impact on Remitters

These differences directly affect the operational experience for remitters.

• For the IBAN System: The remitter only needs to provide one number. The banking system can automatically validate the IBAN’s correctness, greatly reducing the risk of transfer failures or delays due to input errors.
• For the US System: The remitter needs to verify and fill in multiple numbers. This increases the possibility of errors, such as swapping the ABA routing number and personal account number. Precisely because the US does not use IBAN, remitters need to be more careful during operations.

Overall, IBAN simplifies the international money transfer process through high integration, while the US system relies on a combination of multiple components to achieve the same goal.

Deep Reasons Why the US Does Not Use IBAN

Although the IBAN system excels at simplifying international money transfers, the US’s decision not to use IBAN is not due to technological backwardness or stubbornness. This decision is the result of history, economic costs, and pragmatism working together.

Historical Inertia and Sunk Costs

The core reason can be attributed to “historical inertia” and enormous “sunk costs.”

The US ABA routing number system was born in 1910 and has over a century of history. It is deeply embedded in every corner of the US financial system, from banks’ internal software and clearing systems to corporate financial software and government payment processes—everywhere.

What Are Sunk Costs? Sunk costs refer to investments that have already been made and cannot be recovered. For the US banking system, the manpower, material resources, and financial investments made over the past century to build and maintain the ABA system represent an astronomical sunk cost.

Switching such a massive system to the IBAN standard would mean:

• Comprehensive System Overhaul: More than 20,000 financial institutions across the US would need to update their core banking systems, payment processing software, and databases.
• Astronomical Costs: Upgrading or replacing these systems would cost hundreds of billions or even trillions of dollars.
• Huge Operational Risks: Any error in any link during the switch could lead to payment interruptions, fund losses, or even brief financial chaos.

Faced with such high conversion costs and risks, maintaining the status quo is clearly a more rational economic choice.

Domestic System Already Highly Efficient

Another key factor is that the US’s existing domestic payment system is already very mature and efficient, fully capable of meeting its enormous internal economic needs. The system is primarily supported by two parts: FedWire for large real-time payments and the ACH network for small-batch processing.

These two systems handle astonishing transaction volumes daily. Take FedWire as an example; its average daily transaction volume has continued to grow over the past few decades, demonstrating its strong processing capacity and widespread market trust.

In terms of processing speed, the US domestic system also performs excellently.

FedWire: Guarantee of Speed

1. After a bank sends a payment instruction via FedWire, funds are immediately debited from the payer’s account.
2. The receiving bank typically credits the funds to the recipient’s account within 2-4 hours on the same business day. This near-real-time arrival speed is critical for time-sensitive commercial transactions.

Although ACH transfers are slightly slower, they also offer different timing options, sufficient for daily needs like payroll and bill payments.

Althoughcompared to Europe’s SEPA real-time payments, the US ACH is not advantageous in cross-border processing, its original design intent was to serve the domestic market. In this positioning, it already performs well enough. Therefore, from the perspective of US domestic users, there is no urgent need to replace the system.

Lack of Unified Regulatory Push

The successful implementation of IBAN in Europe was inseparable from a strong driver—the European Union. To promote economic integration in the Eurozone, the EU legislated to mandate member states to adopt IBAN as a unified standard.

The US lacks such “top-down” enforcement. The US financial regulatory system is relatively decentralized, jointly managed by multiple institutions such as the Federal Reserve and the Office of the Comptroller of the Currency (OCC). These institutions prefer to optimize and upgrade within the existing framework (such as launching faster payment services like FedNow) rather than overhaul and replace the system disruptively.

Without a unified regulatory body to enforce the push, coupled with a lack of proactive conversion momentum from banks and businesses, the status quo of the US not using IBAN continues.

Existing Solutions Sufficient to Meet Needs

Finally, although operationally slightly more complex, the existing “SWIFT Code + ABA routing number” combination already provides a viable solution for international money transfers. Although modular, this combination functionally achieves a goal similar to IBAN: accurately transferring funds from a bank account in one country to another bank account in the US without errors.

At the same time, market forces have also filled the inconveniences. Many fintech companies and remittance service providers offer innovative solutions that bypass the complex wire transfer processes of traditional banks.

• Modern Remittance Services: These companies set up local accounts in different countries, converting international transfers into two local transfers, thereby reducing fees and increasing speed. Users transfer funds to the service provider’s local account, and the provider then pays the equivalent USD from its US account to the final recipient.
• Payment Platforms: Platforms like PayPal or various payroll platforms provide convenient global payment options for businesses and individuals. They integrate currencyconversion, compliance checks, and payment processing; users only need to enter the recipient’s basic information to complete the transaction without worrying about underlying bank numbers.

The existence of these alternative solutions further reduces the urgency for the US banking industry to adopt IBAN. Since the market has already found ways to circumvent the problem, spending huge sums to solve a “already solved” problem seems unnecessary. This is the most pragmatic consideration behind why the US does not use IBAN.

The US does not use IBAN not because of technological backwardness but as a rational choice based on history, cost, and pragmatism. Its own ABA system has a long history and operates efficiently domestically, and the high cost of replacement makes maintaining the status quo inevitable.

Practical Transfer Checklist 📝 Therefore, when sending money to the US, do not look for an IBAN. Be sure to confirm with the recipient and prepare the following combination of information:

• Beneficiary’s Full Name
• Bank SWIFT Code
• ABA Routing Number
• Account Number

FAQ

How to Find the Recipient Bank’s ABA Routing Number?

The most reliable method is to ask the recipient directly. The recipient can find the correct ABA routing number on their bank statement, at the bottom of their checkbook, or by logging into online banking. Never search for it online yourself to avoid using the wrong number.

Are IBAN and SWIFT Code the Same Thing?

No. IBAN is a complete account number containing country, bank, and account information, mainly used in Europe. SWIFT Code is only used to identify banks globally. When sending money to the US, a SWIFT Code is needed, not an IBAN.

Why Do Some US Accounts (Like Investment Accounts) Not Have an ABA Number?

Some investment companies or fintech platforms are not traditional banks; they may use intermediary banks to receive wire transfers. In this case, you need the intermediary bank’s SWIFT Code and ABA routing number, as well as the recipient’s final account information.

When Transferring Money to the US, What Is the Most Important Information?

The most important combination of information is:

• Account Number
• ABA Routing Number
• Bank SWIFT Code

These three pieces of information together ensure that funds arrive accurately and quickly at the designated account.