IBAN stands for International Bank Account Number. It is a recognized international numbering system used for receiving payments, and to identify a bank account which is held overseas. It provides banks and other financial institutions with more information on top of account numbers and sort codes to help identify overseas payments.
Who uses IBAN?
The IBAN system originated in Europe, and is used for reducing errors and improving verification processes when sending transfers between banks, or when wiring transfers from one bank to another across international borders. There are transaction fees associated with using the IBAN system. For international payments, this could be as much as 3-4% of the total transfer, depending on the banks involved.
While it started in the Eurozone, IBAN has expanded across the world, with more than 70 countries using IBAN, although there are some notable exceptions. For example, North America, Australia and Asia do not use the IBAN when making domestic transfers, but they do recognize the system and process payments when necessary using IBAN.
How does IBAN work?
An IBAN number starts with a two-letter country code. This will be standardized across any given country, so that each has only one country code. For example, the UK country code is GB, while Germany is DE.
This is then followed by check digits, which are designated by the issuing financial institution.
After the first four digits, the remaining characters are known as the Bank identifier, which can specify the bank and often the branch, and then the BBAN, the Basic Bank Account Number. This specifies the individual account.
Where can you find the IBAN number and when is it required?
If an individual is looking for an IBAN number, the best place to start is in their bank statements from their bank or building society. It may also be on their credit or debit card, or found in the mobile app if they are using digital banking. If none of these methods are successful, the individual will need to contact their bank, who can provide it.
If an overseas bank would like to identify an account, the IBAN is one of the most popular methods that they might use. With just an IBAN, payments can be directed to a specific bank account anywhere in the world.
What is the difference between IBAN and SWIFT codes?
IBAN and SWIFT are both internationally recognized methods of identifying specific bank accounts when transferring money overseas. However, the identification process is somewhat different between the two.
With IBAN, an individual account is identified, while with SWIFT, the code is used to identify a specific bank. SWIFT was created first, and is the most commonly utilized method for making financial transfers internationally. The SWIFT messaging service is well known and liked for its ability to share information such as account status.
What is the difference between IBAN and BIC?
Both the IBAN and the Bank Identifier Code (BIC) will be used to make overseas payments. The BIC is made up of eight characters, and helps banks overseas to identify the exact branch where money should be sent. The eight characters are the Bank Code, the Country Code and the Branch Identifier.
All cross-border payments in Euros must quote both the BIC and the IBAN of the account the transaction is going towards. Without this information, the payment can be returned or fail, and a business may incur additional fees.
Is SEPA the same as IBAN?
SEPA is the Single European Payments Area, and it is a set of standards that simplifies cross-border payments between EU member states, and 9 additional regions, especially in Euros. SEPA uses IBAN numbers to perform transactions. While the BIC is often optional when making SEPA payments, the IBAN is necessary for the SEPA transfer to complete.
Why do i Need to know about IBAN?
Making international payments and transferring funds overseas can be complicated. IBAN is just one method, like SWIFT, of simplifying the process and making it more accurate and streamlined. For certain transfers such as payroll payments, using the recipient’s IBAN may make the most sense. This is especially true as IBAN transfers are very safe, considered secure by Eurozone Finance regulators.