How does an IBAN work?
International Bank Account Numbers are made up of a specific group of letters and numbers that are used to identify the country, bank, and account involved. They can only be used to send money, so they will always identify the accepting account exclusively.
Each IBAN includes four sections: the country code, a check code, a bank identifier, and the Basic Bank Account Number (BBAN). The country code is a two-digit letter code from the International Organization for Standardization’s (ISO) registry. The check code is a set of digits provided by the issuing bank to ensure the rest of the code has been transferred correctly. The rest is what you’d expect, something essentially like a routing and bank account number.
Why is the IBAN important?
International banking can be fraught with confusion since different countries have different internal standards for everything from account number formatting to wire transfer processes. This can create real problems when you’re trying to send money between countries. Even using the IBAN requires some flexibility, as there are various lengths of IBAN for banks located in different countries.
Before the IBAN was established in 1997, it wasn’t unusual for an international bank transfer to end up in the wrong bank account, the wrong bank, or even the wrong country. This was very costly for banks trying to claw back the money that was misrouted and was understandably distressing for account holders. The IBAN has greatly reduced these types of unintentional errors in processing international wires.
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