What is an IBAN?
An IBAN or International Bank Account Number is a series of alphanumeric characters that uniquely identifies a customer’s account held at a bank anywhere in the world.
Why is the IBAN so important?
Cross-border transactions introduce a further level of complexity above that of domestic clearing, as there are many variations in the way countries undertake payment processing. Since it is unrealistic to expect the payment Originator to understand the subtleties of multiple domestic clearing systems, it is not surprising that error rates for international payments are significant. These errors frequently lead to payments being rejected, resulting in a negative impact on customer service and increased administration costs. The IBAN has been introduced to help reduce problems with cross-border transactions by providing a standard format for displaying and validating international bank account numbers.
How does an IBAN work?
An International Bank Account Number typically contains a two-character ISO country code, two check digits for validation purposes followed by the domestic bank code and account number.
Example of a UK IBAN:
The format of the IBAN helps to ensure that cross-border payments are processed correctly. The country code indicates the country in which the IBAN was issued and also acts as a reference to the structure of the domestic account number contained within the IBAN. In addition the check digits validate the complete IBAN to ensure it has been entered correctly and has not been corrupted.
IBAN validation is not enough
Although the introduction of the IBAN has helped to structure cross-border transactions, it is only part of the solution to eliminating errors in payments. For example, it is quite feasible to generate a valid IBAN containing invalid domestic details which would result in the payment being rejected. IBAN validation is only one step in the process to correctly and efficiently route cross-border payments.
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