A virtual IBAN (International Bank Account Number), also known as a virtual account, is a reference account number issued by banks that enables routing of payments to a regular/physical account. Virtual IBAN allows businesses to reduce the number of physical accounts they need to receive payments from different international sources. It saves businesses time and cost of setting up and maintaining many physical accounts. That is virtual IBAN in a nutshell, keep reading for more details. 

What is Virtual IBAN?

Any business that does international transactions needs a bank account that is capable of receiving funds across the borders. However, handling transactions from other countries using bank accounts of local banks can be complicated, costly, and time-consuming due to varying financial transaction policies and resources. 

An international bank account number (IBAN) is a standard international numbering system that is used to identify an overseas bank account. IBAN system was originally developed and implemented by the European Committee for Banking Standards (ECB) to simplify transactions involving international payments. The number starts with a two-digit country code, then two numbers, followed by 30 alphanumerical characters.

Originally, IBAN was created to facilitate cross-border money transfers within the EU. It gradually got adopted beyond the EU and was made an international standard under ISO 13616:1997. Currently, most European nations and other countries across the world such as those in the Middle East and the Caribbean have adopted IBAN.

IBAN does not replace the bank’s own account numbering, instead, it only provides additional information that enables the identification of international payments. The IBAN also acts as a method of verifying transaction details.

However, IBAN is not ideal for companies with significant volumes of international transactions. One IBAN is usually connected to one actual account and all the transactions done through the IBAN account will be rerouted to the actual accounts. When using IBAN, it is difficult to manually reconcile all incoming payments, made from different clients at different locations and in different currencies. Therefore, it will force businesses to have many sets of actual and IBAN accounts to sort different transactions. This is where virtual IBAN comes in. 

Virtual IBAN enables allows businesses to assign a unique virtual account to receive payment from each client, for each product line, currency, or payment, which will then be redirected to a master actual bank account. Businesses can now simplify their transaction processes and have more control over their transactions without spending money and time to set up and run different physical bank accounts. While virtual IBAN operates with the same principle as IBAN, it has a number of salient advantages that your business needs to maintain a competitive edge.   

Advantages of  using a virtual IBAN

Easier Business Account Setup

Setting up a virtual IBAN account is simple and straightforward. Any business owner understands the long and bureaucratic process of setting up a traditional bank account. For example, in most countries, you have to be residing in a country to have a local bank account. Such requirements are not binding when dealing with virtual IBAN.  

Better Transaction Management

Your business can establish just a single physical account and obtain multiple virtual IBAN accounts which route to the one actual bank account. The company can, therefore, mimic the effects of having multiple accounts, in multiple countries, for different transactions. You can set up virtual accounts for each client making payments, or for each payment made in a specific currency, or for a specific product line. The business will be able to get separate statements for each virtual IBAN, which simplifies statement reconciliation. You will have better oversight of their cash flow and FX risk management. Having separate statements will enable your business to easily locate each payment, hence easy analysis and identification of transaction patterns. 

Saving on Cost 

Opening and running multiple accounts in different countries are not only time-consuming and laborious but costly. Imagine the type of banking fees a business will pay to run 20 accounts! It must be a lot of money. For Instance, Smiths Autotech of India, a supplier for Mercedes Benz, sells 2 million annually to the car manufacturer yet the bank charges are as high as 20% in FX and transfer fees. This company used to lose 20% of their profit to be paid! However, since they adopted virtual IBAN, the cost has greatly dropped. Virtual IBAN enables companies to create many virtual accounts that serve pretty much as physical accounts while avoiding the high FX and transfer fees for converting every individual payment that comes in when using traditional bank accounts.

Faster Transaction

Virtual IBAN just works with one actual account. Therefore, settlement and routing of payments are much faster than in the physical account. Transaction verification is also faster when using virtual IBANs. These virtual accounts can enable the processing of EU transfers within a day.

Better Security

Security is a very important aspect when dealing with financial accounts. Having many actual accounts exposes the owner to more risks. As the management gets tedious when running many actual accounts, the chances of making cyber-security-related mistakes also increase. A virtual IBAN, however, is kept in redundant, encrypted servers in the cloud. Therefore, they have a very low risk of fraud or downtime. The end-to-end transparency and segregation offered by virtual IBAN also make it easier for businesses to comply with Anti-Money Laundering (AML) Know Your Customers (KYC) security regulations. 

Final Thought

Companies that have adopted virtual IBAN enjoy a competitive advantage. It will save your company money and time for running multiple actual accounts, improve your security, and help you have better transaction security. These factors can be the difference between winning and losing in a competitive business environment. 

However, it is important to choose the right provider of the virtual IBAN. While there are a number of organizations that are licensed to operate as a financial institution hence can provide, some of them may not offer the reliability of the traditional banks. Consider the providers with stringent and regulatory policies. The Provider should also have an established a trusted relationship with a network of traditional banks across Europe.