Asian Banking and Finance fraternity has come a long way in Banking Journey but many more milestones are yet to be achieved. One such milestone which is now in the process of being adopted across the Asian banks is that of IBAN (International Bank Account Numbers).
IBAN is an international standard for identifying bank accounts across national borders. It was originally adopted by the European Committee for Banking Standards, and was later adopted as an international standard under ISO 13616.
IBAN is a standardized and electronically recognizable format of a Bank Account. It is calculated and verified by a precise method and rules in its printed as well as its electronic format.
Europe adopted it as an aid towards the use of a common currency and for facilitating the operation of an “INTEREURO” system of payments, based on “automatic processing” (STP Straight Through Processing) of cross border payments.
IBAN has the following characteristics:
• Alphabetic characters are denoted with uppercase letters.
• The IBAN is fixed in length for each country code prefix.
• The Financial Institution identifier within the IBAN is fixed in length and fixed in position, for each country code prefix.
• It is denoted in a standardized printed and electronic format.
IBAN's primary purpose is to:
• facilitate domestic/cross-border inter-bank electronic payment
• avoid routing errors in domestic/cross-border payments
• facilitate straight through processing
• making payment in a reliable manner as remitter can validate the beneficiary account number
IBAN imposes a flexible but regular format sufficient for account identification and contains validation information to avoid errors of transcription. It carries all the routing information needed to get a payment from one bank to another wherever it may be; it contains key bank account details such as country code, branch codes and account numbers, and it contains check digits which can be validated at source according to a single standard procedure.
Where used, IBANs have reduced trans-national money transfer errors to under 0.1% of total payments. Further, due to its standardized format, the use of IBAN based account number can also facilitate validation of account numbers – in terms of its pattern, fixed length parameters and check digits (calculated on basis of ISO 7064 definitions) - at the time of initiating a payment transaction.
This will help in preventing the errors in credits being afforded to wrong beneficiary accounts. This becomes more important in view of the following:
(i) credits being afforded solely on the basis of account number,
(ii) large number of transactions being processed in electronic modes of payments using straight-through-processing making it difficult for the banks to subject them to any manual check towards verification of other account details
(iii) possibility of withdrawal / transfer of funds in very short time thus reducing the chances of recovery in case of credit being routed to wrong account.
These important benefits make a strong case for recommending IBAN for banks. Adoption of IBAN is essential not only for bringing in uniformity but also for enhancing the efficiency in systems that use account numbers as a critical input for successfully processing the payment transactions.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.
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Diptiman Chakraborty is Manager at the National Payments Corporation of India.
Romadeep Chakraborty is Assistant Manager in National Securities Depositories of India.