What is an IBAN?

When making international transactions, it is common to use an IBAN, or International Bank Account Number. An IBAN is a standardised numbering and lettering system that identifies an individual’s bank account when sending money, particularly between accounts in different countries.¹

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This article looks at IBANs, how they work, and how they can help make banking easier across borders.

What's the purpose of an IBAN?

An IBAN is an internationally recognised bank account identification number used to make transactions between bank accounts.

When defining exactly what an IBAN is, it is broken down like this: An IBAN can be up to 34 characters, typically a combination of numbers and letters. It indicates the country code of the bank where an account is registered, as well as an individual’s unique account number sequence.

IBANs are used in over 70 countries, mostly within the Eurozone.² They can help banks identify where money is being sent, and where it is being received from, to help verify accounts and ensure money gets where it needs to be. IBANs are commonly used for international transfers and cross-border transactions.

What are the components of an IBAN?

IBANs are typically made up of the following core components:

• Country code: The first two characters, which identify the country where the account is located and registered.
• Check digits: Two digits, which are used to ensure the IBAN is correct.
• Bank identifier: Commonly four digits, which identifies the specific bank.
• National code: Two digits, which indicate the national code.
• Account number: Typically 10 digits, which identify the customer’s unique account.

These IBAN components together form a unique code that ensures payments are going to the right place and provide a standardised way of identifying foreign bank accounts in global transactions.

How does an IBAN work?

When setting up international transactions to other IBAN accounts abroad, a bank may request the IBANs of both the sender and recipient, along with name, address, and bank details.

When a transaction is initiated, the IBANs are processed through each bank’s digital payment systems and the numbers and characters are verified for accuracy against algorithms and databases. These systems can help safeguard funds and ensure they’re sent to the intended accounts, typically within a few business days.

IBANs can be used between personal accounts and for businesses making transactions across borders. They can also help enable direct debit payments between countries—for example, if a person works for an employer in another country or wants to pay for an international service or subscription located elsewhere.

What are the benefits of an IBAN?

Using an IBAN benefits transactions in a range of ways, which can include:

• Smoother payments: IBANs can help banks ensure smooth transfer of payments between accounts situated in different countries. IBANs can make it as easy to send money from an account in the UK to an account in Spain, for example, as it would be to send money to a domestic account.
• Simplified processing and reduced errors: The character system can help verify accounts faster, streamlining transfers and processing while aiming to minimize errors and transfer delays. An IBAN may also help avoid additional banking fees, for example, in the event of a rejected transaction.³
• Enhanced security: The standardised format can help banks prevent payment fraud, send money safely, and keep accounts and personal information safe. It’s a secure method because an IBAN can only be used to send money to an account, not to withdraw or transfer money from it.
• Improved efficiency: A clear, common account identification format helps enable faster, safer, and more reliable funds transfers, which can be done using different currencies.

The importance of IBANs for global commerce

In the busy, fast-paced world of international trade, IBANs can help make cross-border transactions work faster and more efficiently.

By ensuring that banks and institutions comply with the IBAN format and regulatory requirements, it helps to unify banking processes across different countries, aiming for smoother commerce and financial communications.

Obtaining an IBAN

Banks may supply customers with an IBAN anytime a checking account is set up. The IBAN will be typically referenced at the top of a bank statement, on a debit card, or stored with personal customer information in a banking app or digital wallet.

Using IBANs for international transactions

IBANs are considered a fail-safe, efficient, and secure method of making international transactions since they use algorithms to ensure validity.⁴ If a transaction does not match an IBAN account, the banks may reject it.

But it is important to note that transactions may still go through to a matching IBAN—even if it belongs to an incorrect recipient. So be sure to self-verify each IBAN before sending money and double check the details so a transaction is accurate and secure.