Businesses have an uphill task of finding effective ways to make cross-border payments seamless and fluid.
With a traditional account, the onboarding process alone is long and tedious. Also, businesses must dedicate crucial resources to maintain their financial relationships with banks.
All this is changing thanks to virtual IBAN accounts. It is an alternative that provides more control, enhanced efficiency and a simpler and faster implementation process.
What is an IBAN, and Why Do You Need it?
An IBAN also called the International Bank Account Number, is a unique code that allows you to make and receive international money transfers. It is used in the EU and the SEPA zone.
The IBAN contains all the necessary data about the beneficiary making transfer operations more precise. Here’s a breakdown of what IBAN displays;
GB 43 NWBK 597247 04104XXX
The first two letters represent the ISO code of the country. The above number starts with GB, which is the ISO code from Great Britain.
- The next two numbers (43) are the check digits. The check numbers help the system use an algorithm to calculate your IBAN in case you mix up some of the numbers.
- After the check digits, the next four digits are the bank code. These represent specific banks. In this case, NWBK stands for National Westminster Bank. These digits can be represented as digits or characters.
- The 597247 digits are for the bank branch code. These digits can vary in length and sometimes only consist of two digits.
- The last eight digits represent the account number.
The length of the IBAN is not standard. It differs from country to county. In some countries, it can be up to 34 characters long.
The IBAN is crucial when making a transfer with Europe and is one of the required details when making the transfer.
What is a Virtual IBAN Account?
The virtual IBAN or the vIBAN is like an IBAN but is also different in many ways. The structure of both the vIBAN and the IBAN are the same. But the virtual IBAN allows transfers to an online account rather than a traditional bank account.
It is usually easy for businesses to get a vIBAN as the application and approval processes are entirely online, so you don’t have to deal with the bureaucracy of traditional banks.
Like traditional IBANs, vIBANs can be used to send and receive payments. But instead of channelling the funds to a traditional account, the vIBAN directs it to an online account.
From the customer’s perspective, the vIBAN and the IBAN operate the same way. It allows them to send and receive payments and transfer funds from their linked physical IBAN accounts.
How Does a Virtual IBAN Compare to the Regular IBAN?
A virtual IBAN is similar to a regular IBAN in as many ways as it is different. A regular IBAN matches your bank account. It allows you to receive and send funds in one currency. A virtual IBAN represents a multi-currency option. That means you can have separate vIBANs for sending and receiving different currencies. The money you receive from them is then rerouted to one singular account.
vIBANs are proving to be quite a convenient tool for companies that accept payments from clients internationally or pay contractors that live worldwide. It is a cost-cutting measure because businesses don’t have to pay the currency exchange fees.
What are the Benefits of Virtual IBANs?
From the relatively short description of a virtual IBAN, you can already pick out a few ways it could be helpful to your business. Here are other reasons why a vIBAN is beneficial.
Easy account setup
A virtual IBAN helps to remove a lot of the red tape associated with setting up a traditional bank account. Applying for an account with a traditional bank can be exhausting and lengthy, especially when that account is for a business.
These accounts require extensive paperwork and requirements, which is not the case with a virtual IBAN. The only notable requirement with a vIBAN is that you and your business must reside in the same country as your provider.
A virtual IBAN opens you up to more functionalities and opportunities. You get access to a multi-currency account and a multi-jurisdictional banking solution. This saves organisations the need to build banking relationships in each country. For instance, a businessman can direct their payments into a separate virtual IBAN account. You can then create sub-accounts according to your business model.
Using a virtual IBAN can save you up to 20% in fees and currency conversion rates. Traditional banks charge a high foreign exchange rate, and the transfer fees for individual payments are through the roof. vIBAN providers have different and more competitive pricing models. These benefits are more evident among online businesses operating in several global markets.
Despite the virtual IBANs being easier to obtain, the security on the platforms is top-notch. The vIBANs are stored in the cloud in encrypted, redundant servers for a highly secure service with little to no risk of fraud or downtime.
Also, vIBANs help businesses comply with Anti-Money Laundering (AML) and KYC regulations thanks to end-to-end transparency and funds segregation. Some financial providers go as far as offering compliance-as-a-service to the customer as well.
Choosing a virtual IBAN can accelerate and diversify payments, fuelling business growth. With the vIBAN, you will have a multi-currency account and multi-regional banking solution that doesn’t need you to invest time and resources in building different banking relationships to manage your business. This approach simplifies and speeds up transactions for your business. It also helps to cut costs and increase your bottom line by eliminating unnecessary currency conversion rates and banks’ high money transfer fees.
Because the vIBAN can also be addressed within domestic payment clearing networks in the UK and the EU, including BACS, CHAPS, Faster Payments, SEPA and SEPA Credit Transfer, the business can collect domestic payments in the UK and across Europe.