How to avoid IBAN discrimination?

The purpose of IBANs was to simplify bank transfers across Europe. With SEPA Regulation's creation, Member States were now legally bound to accept IBANs from other SEPA countries as a local payment. Hence, it is surprising that some European banks do not acknowledge IBANs from other SEPA states. It is called IBAN discrimination, and it is illegal.

Navigating your payments around IBAN can be confusing at times since not all banks adhere to the rules. Therefore, we gathered some crucial information for you to understand what IBAN is and how it affects your payments, in the following:

1. What is an IBAN, and how do I know if I have one?

An IBAN is an International Bank Account Number introduced by the European Committee for Banking Standards to reduce bank detail errors. Unlike SWIFT/BIC, which identifies the bank, an IBAN identifies the bank account. Although meant for EU/EEA, several Non-EU/EEA countries have also adopted IBANs for account identification.

Note: To check the validity and accuracy of IBANs, check out the IBAN calculator.

All SEPA countries must communicate account numbers in IBAN format automatically when making payments. However, some countries do not, and instead, they offer their customers to generate IBANs on their website and publish it themselves to the receiver. For example, the United Kingdom does not publish IBANs when making a payment. Customers have to generate them separately to make SEPA transfer, even though the UK is part of SEPA. Or the customers have to contact the bank for IBAN support. The risk of non-communication of IBAN is that banks charge customers for a SWIFT transfer, which is more expensive. They can also add an extra charge for currency conversion since the UK does not operate in Euro.

2. What is IBAN discrimination?

IBAN discrimination is where one SEPA country refuses to treat an IBAN payment from another SEPA state as a local one. It could take various forms, for instance, by challenging the account holder to follow strict local format, such as using the domestic country code of that particular state or asking to fill in an IBAN in a domestic form. For example, a Spanish resident in France needs to transfer money to a Spanish institution from a French bank. However, the Spanish bank fails to start a standard SEPA-payment because the recipient's IBAN does not begin with an ES but an FR. Another example could be a Belgian resident working for a German company, not receiving the salary in the Belgian bank account because the German bank is refusing to do so.

It is illegal to refuse European IBANs. Under article 9 of Regulation (EU) No 260/2012, institutions must accept IBANs from states within EEA.

3. How does it affect you?

IBAN discrimination can affect you in numerous ways. Employer banks may refuse to pay your salary simply because your bank is in another SEPA state. Institutions can prevent you from paying your bills from other SEPA banks or investing in another EU country. Institutions in a SEPA state may end still up charging you with an international transfer, even though both sender and receiver states operate under the same Euro currency. As for non-Euro SEPA state, there will be a conversion charge added. The consequences are endless, but the barrier prevents EU residents from making any transactions outside their country, which would otherwise make their lives easier.

New century fintech companies try to help: Wise asks their customers to inform them if an establishment does not accept their local IBAN. Revolut recently signed a partnership with Libra Internet bank to provide local Romanian IBANs for all Revolut card accounts. It will help Romanians receive money from Romanian banks and top up their Revolut accounts from their Romanian bank account. Quanloop offers free consultancy to its customers on cross-border wire transfer management.

4. What can you do about it?

You, as a customer, are encouraged to report these institutions to your local authorities for breach of SEPA regulation. Fortunately, there are relevant institutional-bodies that receive complaints regarding IBAN discrimination. However, such a procedure may take time when you may miss your payments, salaries and other transactions you needed to make. It is more convenient to either give in and open a local account or take an alternate route in those situations.

Even though the IBAN discrimination exists, it is still possible to find a way to benefit from the cross-border services run by the other European Union companies paid by a wire transfer. If a usual transaction to a foreign IBAN does not work, try a European payment or a Foreign Transaction and ask your bank to stop charging you for EU interstate transactions.

Last update: 23/03/2021