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IBAN: what it is and how it works

May 18, 2024 By Triston Martin

A numbering system used to identify bank accounts at the national and international levels is known as IBAN (International Bank Account Number). Each character of the IBAN represents a unique detail of your bank account. This system has sped up the money transfer process and minimized errors in transactions.

The standardized IBAN system aims to identify a foreigner's bank account. The first two digits of IBAN represent the country code, and the new two digitals are the check digitals, followed by the bank code, branch code, and bank account number. This makes international transactions process.

What is an international bank account number (IBAN)?

IBAN is a numbering system used to transfer payments domestically and globally. It's a quick and secure method of transferring money. Every user has a unique account number of 34 characters. The system is quite secure to ensure your funds will remain safe. The system verifies each character of your account data to avoid any incorrect transaction.

The purpose of designing the IBAN system is to make the foreign money-transferring process simple. Account numbers of every person are unique and contain specific details of the account holder. This further increases the security of the system. You can't withdraw your money using IBAN. It is only used to send and receive money.

How an IBAN works

IBAN made overseas transactions relatively easy. The characters of your bank account number will run through the bank system's database to confirm sender and receiver accounts to avoid any error in the transaction. Baking systems have unique algorithms that digest and verify whether the information is accurate. If all the information is validated, payment will be sent to receiver accounts.

If you enter incorrect IBAN numbers for which no IBAN account exists, the transaction request will be rejected. However, if you enter the right IBAN numbers, the payment will be transferred smoothly from one sender to the recipient, even if you enter the wrong recipient name. Without the recipient's permission, you can reverse any transaction, which can result in funds loss, so be mindful while entering the IBAN number.

Components of IBAN Number

An IBAN number includes 34 characters arranged in a specified format. In the United Kingdom, an IBAN contains only 22 digits, with country code, check digits, code of bank, sort code and bank account number.

  • First two lettersCountry code: The first two characters of the IBAN represent the country code where your bank is located. For example, in the United Kingdom, it would be "GB."
  • Next two digitsCheck digits: The next two characters are check digits, which are used to validate whether your IBAN number is accurate. These two digits will be calculated using a unique algorithm.
  • Four charactersBank code: These four characters represent the bank.
  • 6-digitsBranch code: This specifies the branch of the bank, which helps to determine where exactly that bank is located.
  • Eight digitsBank account number: The last eight characters in IBAN represent the account number. Usually, the shorter account numbers are justified from the left to make 8-digits

Here is a hypothetical example of an individual bank account number:

Country code

Check digits

Bank code

Branch code

Bank account number

GB

14

WXYZ

205623

32678987

Where can I find my IBAN?

Your IBAN is included on the bank statement provided to users by the bank. You can also get it from the online banking application of the bank in which you have an account. Some online IBAN calculators can generate your IBAN for you by asking for your primary account details, but they are inaccurate.

The ideal way to contact your bank to get the correct IBAN is to either contact them online through customer care or visit physically to ask for the beneficiary. This will give you satisfaction that the money you send in foreign currency will be safely sent and received.

What is the use case of IBAN?

IBAN is used to send and receive payments from foreign countries. When you send a payment globally, make sure to check the recipient's full name, address, bank name and address, and IBAN. Sometimes, you might be asked for your purpose of sending the payment and your relationship with the applicant.

If you enter the incorrect Individual bank account number, contact the customer case of the bank instantly to recover the funds that you sent mistakenly. The earlier you contact the bank, the easier it will be for you to get your funds back.

To receive money from a foreign country, make sure to send the sender your full name, address, and IBAN number on which you want to receive payment. If the funds you receive are in a different currency, the bank will automatically convert them into local currency at the current market rate and then credit them into your account.

Requirement for IBAN

Although the requirements for creating individual bank accounts vary from country to country, all IBANs start with a country code and check digit. For example, a Brazilian individual bank account number requires a country code, branch code of the bank, account type, account number, and number of the owner's accounts. El Salvador needs only an account number and the country code.

Is IBAN the same as the average account number?

The average account number and IBAN aren't the same. A regular account number is used for everyday transactions within your country, and an IBAN is used for global transactions to receive and send money internationally. But when performing international transactions, you can be asked for both your average account number and your IBAN so that banks can double-check to ensure a secure transfer.

How long does an IBAN transfer take?

It depends on the location from where you're receiving and sending money and the bank of your sender bank and your bank. Usually, it takes a day to process cash in the same currency route; for other transactions, it might take up to 5 working days.

Why was IBAN created?

Before IBAN, every country had its own banking methods to process transactions, which often led to frustration, confusion, and even wrong payment transfers. To overcome this issue and standardize the system, the International Organization for Standardization (ISO) was created, which simplified international money transfers.

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