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International Bank Account Number (IBAN)

IBAN is an acronym which stands for the International Bank Account Number. This standardized numbering system for identifying bank accounts around the world with precision was first conceived of and implemented by the banks of Europe. They wanted to make simpler the means of transacting between bank accounts of financial institutions based in different countries.

This internationally agreed to system for identifying the world’s banks and bank accounts was critically needed for banking across international borders. European banks found it necessary to come up with a way to effectively process the cross border transactions. They wanted to dramatically lower the dangers of errors in transcription and subsequent transmission problems which sometimes resulted.

It was the ECBS European Committee for Banking Standards that first adopted the IBAN concept. It later evolved into a global standard under the auspices of ISO 13616:1997. This standard became updated with ISO directive 13616:2007 that now utilizes SWIFT as the official registrar. The system originally arose as a means of facilitating payments made throughout the European Union. It has now been put into place by the majority of European nations along with many countries throughout the globe, especially in the states of the Caribbean and Middle East. Sixty-nine different nations utilized the IBAN account numbering system as of February 2016. More sign up all the time.

The IBAN account number is made up of several components. The two letter national code comes first. This is followed up by the two check digits which enable an integrity check of the IBAN number to be sure it is correct. Finally come as many as thirty alphanumeric characters which are also called the BBAN, or Basic Bank Account Number. Each national banking association decides which BBAN will become the standard for their own national bank accounts. In general, the remaining thirty characters include such information as the domestic bank account number, branch location identifier, and additional routing information.

While the IBAN concept has taken hold effectively throughout the continent of Europe, it is not a universal global standard yet, though it is the closest thing to one. The practice of working with such standardized account numbers as these is growing and gaining in popularity in other countries of the world. This is proven by the fact that nearly forty non- European countries now employ the International Bank Account Number system for themselves on only the twentieth anniversary of the concept being introduced originally.

Before the rise of the IBAN, every country utilized its own national standard to identify bank accounts within their own borders. This proved to be confusing in Europe, particularly as the borders between the 27 different EU countries began to blur thanks to the EU. Free movement of people, capital, and goods meant that money was being drawn from and transferred back and forth between the banks and bank accounts of different European states on an increasingly common basis. Sometimes important and even critical routing information was simply missing from transfers and payments.

SWIFT’s routing information does not require transaction specific formats which identify both account numbers and transaction types specifically. This is because they leave the transaction partners to agree on these. SWIFT codes also lack check digits, meaning transcription errors can not be detected nor can banks validate the routing data before they submit the payments without these two digits. Continuous costly routing errors were creating delays on payments and transfers as the receiving and sending banks were also working with intermediary banks for routing.

The ISO International Organization for Standardization overcame these problems in 1997 by creating the IBAN in association with the European Committee for Banking Standards. Because the ECBS simplified and better standardized the original format proposed by the ISO, an update was issued with ISO 13616:2003 and then again in ISO 13616-1:2007.

As of 2017, the United States’ banks do not employ IBANs themselves. Instead, they utilize either Fedwire identifiers for the banks or the ABA Routing Number.

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