Common banking terms and definitions for transfers
In the world of banking and bank transfers, there’s a lot of jargon. It can be confusing when you’re trying to make a transfer and are hit with a wall of words you’re not familiar with.
Thankfully, we at Neat work in the world of finance, so we thought we’d put together a glossary of common banking terms and definitions when it comes to transfers.
Common banking terms and definitions for transfers
ACH / FPS / CHATS / RTGS
These are different types of bank transfers. While these abbreviations are used in multiple countries, we’ll explain their meanings in the context of the Hong Kong banking system.
ACH (Automated Clearing House) is a centralised clearing system used in all banks in Hong Kong. Because it clears payments in batches rather than in real time, it has become less popular and is being phased out and replaced by faster and cheaper FPS.
CHATS / RTGS
CHATS (Clearing House Automated Transfer System) and RTGS (Real-Time Gross Settlement funds transfer) are – somewhat confusingly – used interchangeably in Hong Kong, and refer to a system to send instant transfers from bank to bank. With the introduction of the cheaper FPS, however, it’s become less common.
FPS, however, can only clear HKD and CNH (the offshore Chinese Renminbi) but not other currencies. So if you were to send USD in Hong Kong locally, it would travel through RTGS.
FPS stands for Faster Payment System. The Hong Kong Monetary Authority introduced this faster method for cross-bank local transfers in 2018, and allows instant transfers. It also enables people to send funds to recipients via mobile number or email address.
A bank code (also known as the clearing code) is a 3-digit code used to identify different banks, typically during transfers.
If you use Neat for receiving payments in Hong Kong, our partners’ bank codes can be easily found in your Business dashboard.
You can also use this tool to look up the bank code for any Hong Kong bank.
Just like each bank has its own identifying bank code, in Hong Kong and some other countries, each branch of a bank has its own identifying code as well. The branch code differentiates each physical branch of a bank, typically used when transferring money. When you look for your account details, some banks will list the branch code as a separate code, while other banks may list it as part of the account number.
When you make a payment to a Hong Kong bank account, you can use the following guidelines:
• If an online banking site specifically asks for a branch code, you can split up the branch code and account number.
• If no branch code is asked for in the account number field, simply input the branch code followed by the account number as one joint number.
In the context of making a bank transfer, the “beneficiary” is the person/company that’s receiving the money. This is a synonym for payee and recipient.
E.g. Sarah sent Tom $1000. Sarah is the sender and Tom is the beneficiary.
IBAN (International Bank Account Number)
An international bank account number (or IBAN for short) is a standard international identification system for bank accounts around the world, used most commonly in international bank transfers. The concept originated in Europe and continues to be the most popular there. The first two letters in an IBAN are the country code, followed by a two-digit check code, then up to 35 digits for the account number. The IBAN is mandatory when transferring money to most countries in Europe.
Not all countries use IBANs. For instance, for Hong Kong bank accounts, typically an IBAN cannot be provided and when you make an international transfer to a Hong Kong bank account, you’d use the SWIFT code + account number.
What’s the difference between an IBAN and a bank account number?
In international transfers, the IBAN is an additional number that provides more information, like the country code. It’s provided along with the bank account number, and doesn’t replace it.
Intermediary / correspondent bank
Intermediary banks or correspondent banks are both third-party banks that help facilitate international transfers. They act as middlemen between a remitting and receiving bank when the two banks are from different jurisdictions that don’t have an established financial relationship. Usually, the correspondent bank will charge a handling fee, which may cause the amount received at the recipient’s end to be less than what was originally sent.
A multi-currency account is a type of account that allows you to receive and hold more than one currency. For example, you may have a bank account in Hong Kong that can allow you to receive HKD, EUR, and GBP. Typically you receive other currencies too in that multi-currency account, but they will be converted into one of the account’s base currencies.
Multi-jurisdiction, multi-currency account
This is an account that also lets you hold multiple currencies at once, however, instead of all your currencies held in one country, they’re held in different ones.
For example, you may have a multi-currency account that gives you an HKD account in Hong Kong, a USD account in the USA, and a GBP account in the UK.
OUR / BEN / SHA
When you make an international transfer with SWIFT, you have the option of choosing who pays the transfer fees (in field 71A “Details of Charges”), using the codes OUR / BEN / SHA.
OUR = means you’ll (as the remitter) pay all the charges. This ensures that the amount you send is the amount your beneficiary receives.
BEN = your beneficiary will pay everything. The charges will be deducted from the amount they receive.
SH = means you’ll pay your own bank’s outgoing transfer fee, and your beneficiary will pay the SWIFT and receiving bank fee, which includes the handling fees charged by correspondent banks.
These are all the details such as Beneficiary Name, Beneficiary Address, Beneficiary’s Bank Name, SWIFT Code etc.545 Think of it like an address where you’ll receive or send money.
Local payment instructions
When you’re sending money from your local account to another local bank account, your orders are called local payment instructions.
International payment instructions
When you’re sending money from your local account to an account in another jurisdiction, or vice-versa, you need to provide international payment instructions to make it happen.
Remittance is the transfer of money, most commonly used when sending funds from one country to another.
A remittance company is a company that sends transfers money internationally, used as an alternative to international bank wires. An example of a remittance company is Western Union.
(Note that a remittance is separate from a currency conversion. You may for example remit USD from Hong Kong to the USA.)
Used in the American banking system, a routing number is a nine-digit number that identifies the location a US bank account was opened. This is something typically used when transferring money internationally.
SEPA stands for Single Euro Payments Area, which includes:
- All 28 member states of the European Union (and the UK, even after BREXIT)
- The four member states of the European Free Trade Association
- Andorra, Morocco, Vatican City, and San Marino
SEPA was established to simplify bank transfers that use euros, and is essentially a borderless payments zone.
Used in British and Irish banking systems, the sort code is an identification number used to transfer money between banks. It’s a six digit number, typically formatted in pairs, for example: 12-34-56. Similar to the Bank Code in Hong Kong.
SWIFT (which stands for the Society for Worldwide Interbank Financial Telecommunication) refers to the network of banks around the world that work together to facilitate international transfers.
A SWIFT transfer is a cross-border transfer of funds sent through the SWIFT network. For example, if you were to send a transfer through HSBC in Hong Kong to JP Morgan in the United States, it would travel through the SWIFT network.
Most international transfers are processed through SWIFT.
A SWIFT code a numerical code that helps identify banks and financial institutions globally when facilitating an international transfer. Each time you make a SWIFT transfer, you’ll need the SWIFT code of the recipient bank.
Where do I find my bank’s SWIFT code?
You can use this website to find the SWIFT code of any bank.
Telegraphic Transfer (TT)
A telegraphic transfer (also colloquially referred to as TT) is a method of electronically sending money transfers. This includes domestic transfers and international transfers. Nowadays in Hong Kong, it’s commonly used to refer generally to overseas wire transfers.
E.g. My client is going to send me a TT from London to cover this month and next month’s invoices.
We hope this guide of common banking terms and definitions has been helpful for you!
We’ll be expanding this guide to include more, so stay tuned.
Lastly, if you’re looking to make international payments, come check out Neat.