What is an IBAN number?

International transactions have become commonplace in the globalized financial world. But what exactly is an IBAN, and why is it so crucial for smooth cross-border banking?

This blog post reveals the secrets behind IBANs and their importance in international banking transactions.

International Bank Account Number (IBAN)

IBANs, short for International Bank Account Numbers, are essential for making or receiving fast, secure, and error-free cross-border payments.

Unique to each individual and account, the IBAN acts as a safeguarding system by verifying account data before transferring funds between international banks.

The IBAN number consists of up to 34 alphanumeric characters. Each section of the IBAN provides specific information about your account and helps to ensure its accuracy during transactions.

In practical terms, an IBANn is a distinct code used exclusively for international payments, separate from your regular account and sort numbers. Its purpose is to enable overseas banks to identify your bank account, allowing for seamless sending and receiving of international payments.

The composition of an IBAN includes various numeric identifiers, such as a bank account number and country code, which serve to convey the correct bank and associated account details to international financial institutions.

Why was IBAN created?

The IBAN number was created to simplify and standardize international banking transactions. Before IBAN transfers from one country to another required different account number formats. It often led to errors, delays, and increased costs.

Globalization and the proliferation of companies and individuals trading across borders have created the need for a single system. The International Organisation for Standardisation (ISO) developed the IBAN system, which has become the globally accepted format for identifying bank accounts.

The purpose of an IBAN

The main goal of IBAN is to improve the accuracy and efficiency of international payments and increase the overall security of financial transactions. By standardizing account numbers, IBAN helps to:

• Avoid data entry errors
• Reduce payment processing delays
• Reduce the risk of funds being transferred to the wrong account

How an International Bank Account Number (IBAN) works?

Among the IBAN symbols is the Basic Bank Account Number (BBAN), which contains crucial information and varies according to the bank account standard chosen by the banking association for each country.

When initiating an international transaction, the unique IBAN is validated in the payment system used by the bank. The system checks the accuracy of the numbers and letters against its database. The system also ensures the validity of both the sender’s and the beneficiary’s accounts.

Sophisticated algorithms allow to process and authenticate the account information. Once the information is validated, payment is made accordingly. This comprehensive verification process ensures secure transaction processing.

Who uses International Bank Account Numbers (IBAN)?

The IBAN system was originally designed to facilitate electronic payments between Eurozone banks. Eventually, it was adopted worldwide.

However, not all banks and regions have adopted this standard. Therefore alternative systems such as SWIFT are still needed. Countries in North America, Australia, and Asia do not use IBAN for domestic money transfers. In these countries, the IBAN number is only required when sending funds to countries that have adopted the IBAN system.

Today, IBANs are used in more than 70 countries worldwide. Although not all countries have adopted IBAN for domestic transfers, it is becoming necessary for international transactions with countries that have adopted the system.

Components of an IBAN number

The IBAN number consists of a maximum of 34 alphanumeric characters. These characters are grouped and have different meanings:

• Country code: This is a two-letter ISO (International Organization for Standardization) country identification code.
• Check the digits: the digits of the check are assigned by the financial institution that issued the account to check the accuracy of its number.
• Bank identifier: This identifies the financial institution. In some cases, the bank identifier may also contain information about a specific institution’s branch.
• Basic Bank Account Number (BBAN): It uniquely identifies an individual account with a specific financial institution and country.

IBAN vs. SWIFT code

The International Bank Account Number (IBAN) and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) code are two standard methods for identifying bank accounts for international transfers. Each code has a different purpose in the international financial market.

The IBAN number allows one to identify the individual account involved in an international transaction. The code consists of 32 alphanumeric characters, including a country code and a checksum. This code displays information about the beneficiary’s bank, country, and specific account.

On the other hand, the SWIFT code allows to identify a specific bank in an international transaction. The Swift code consists of 8 to 11 alphanumeric characters: the letters identifying the bank, the country code, the area code, and the branch identification. Unlike the IBAN, the SWIFT code does not specify a specific account number.

SWIFT has extensive messaging capabilities and remains the main method for international fund transfers. It allows banks to exchange a large amount of financial data: account status, debit and credit amounts, and transfer details.

IBANs are commonly used in the European Union and neighboring countries. Banks in the United States and Canada recognize IBAN and use the system for outgoing international transfers.

SWIFT codes, on the other hand, are more generally accepted, especially outside Europe. These codes are used not only by banks but also by other institutions such as brokerage firms.

IBAN vs BIC

The term ‘Bank Identification Code’ (BIC) is usually used as an alternative to the SWIFT code. For this reason, BIC and SWIFT codes are often seen together as SWIFT/BIC. The SWIFT network is the system used for international transfers, and BICs are the codes used in this network

So what is the difference between IBAN and BIC? The IBAN primarily indicates the country of operation of the bank and the individual’s account number with that institution. On the other hand, the BIC (Bank Identification Code) provides more specific information to facilitate the transaction.

The BIC consists of alphanumeric characters, including a 4-letter bank code, a 2-letter country code, and a branch identifier of a letter and a number.

It is essential to have the correct BIC. An incorrect BIC may result in additional costs incurred after the transaction to correct a misdirected transfer.

FAQ

How do I find my IBAN number?

You can usually find your IBAN number on your printed bank statement, together with your account number and sort code.

Also, you can always check this number in your online banking account under Account details.

In addition, some European banks print the IBAN number on their customers’ bank cards.

If you still can’t find your IBAN number, we recommend you contact your bank’s customer service. How Can I Get an IBAN?

Is an IBAN the same as an account number?

No. The IBAN number is a standardized international numbering system. It lets to identify bank accounts for international transactions.

The account number is part of the IBAN number. It is a unique identifier that the bank assigns to a specific account in its system.

Is the sort code in the IBAN number?

No, the sort code is not a part of the IBAN.

This six-digit code lets to identify a specific bank branch in some countries, such as the UK and Ireland. It is a code for local payments in these countries.

Which countries use IBANs?

Many countries around the world use IBAN, but certainly not all.

Most of the countries using IBAN are in Europe. These include countries such as Germany, France, the United Kingdom, Spain, Italy, and the Netherlands. Non-European countries such as Australia, the United Arab Emirates, Saudi Arabia, Canada, and Singapore also use IBAN.

Many other countries have started to use IBAN or have implemented similar systems for international bank transfers. However, the specific requirements and formats may vary from country to country.

What happens if you used the wrong IBAN number?

Using the wrong IBAN for a bank transfer can lead to various consequences. However, the consequences are highly dependent on the situation. Here are a few possible outcomes of using the wrong IBAN number include:

Payment delay or rejection

If the IBAN you provide is incorrect or does not match the beneficiary’s bank account, the beneficiary’s bank may delay or reject the payment. In this case, the bank may withhold or return all funds to the sender.

Additional fees

The bank may charge to pay for processing and investigating incorrect or failed transactions. The amount of the fees may vary depending on the banks involved and the nature of the transaction.

Loss of funds

If the incorrect IBAN corresponds to a valid bank account, funds may be transferred to that account. Unfortunately, if the account belongs to someone else, it may be difficult to recover these funds. It may require the involvement of banks or even legal procedures.

Difficulties in solving the problem

Problems caused by incorrect use of IBAN can take time to resolve. It may also require coordination between the sender’s and receiver’s banks. If you use the wrong IBAN to initiate a payment, it is important to contact your bank as soon as possible.

The only way to avoid the use of an incorrect IBAN is to double-check and verify the accuracy of the recipient’s account details before making any international or domestic bank transfer.

How safe is an IBAN?

The transfer of funds using an IBAN number for international payments within the euro area is secure.

By using your IBAN, other people can deposit money into your account but cannot withdraw it. Therefore no risk to the security of your funds.