What is IBAN?

IBAN, or an International Bank Account Number, makes it easier and faster for banks to process cross-border financial transactions.

An international standard, IBAN identifies individual accounts at specific institutions in countries throughout Europe as well as some in the Caribbean, the Middle East, and North Africa.

Currently, the United States doesn't use the IBAN standard. Instead, the U.S. uses Society for Worldwide Interbank Financial Telecommunication (SWIFT) codes to send and receive instructions to conduct international wire transfers.

The IBAN registry provides a list of countries that mandate IBANs along with every country’s IBAN format. SWIFT is the official IBAN registrar.

History of IBAN

Before the International Bank Account Number system was established, different countries used different standards to identify bank accounts, e.g., the bank, the branch, routing codes, and account numbers. This caused a lot of confusion among financial institutions processing international transactions because critical routing numbers were often omitted when payments were made. This caused payment delays and added extra costs to both sending and receiving institutions.

In 1987, when the International Organization for Standardization (ISO) published ISO 9362, also known as the SWIFT code or Bank Identifier Code, it didn't specify how banks should format transactions. That meant that the two parties involved in a transaction had to agree on the type of transaction and how to identify accounts. This caused a lack of consistency when it came to international trade.

Then in 1997, the ISO published the ISO 13616:1997 proposal; however, the European Committee for Banking Standards felt that this proposal would never work because it was too flexible. In response, the committee drafted a scaled-down version of the standard that stated that each country's IBAN must be a fixed length and contain only uppercase letters.

Ultimately, the ISO withdrew ISO 13616:1997 and developed a new standard, ISO 13616:2003. Created in 2003, this standard was updated again in 2007 and split into two parts: IBAN and SWIFT.

Structure of IBAN

Every country that requires its financial institutions to use the International Bank Account Number system has a particular national IBAN code. IBAN codes include all the country, bank, and account details necessary to send money internationally. These codes can contain up to 34 numbers and letters.

In the United Kingdom, for example, an IBAN can contain a total of 22 letters and numbers and includes:

• Country code: The first two letters represent the country where a user's bank is located, which is "GB" for the U.K.
• Check digits: The next two digits are check digits, which banks use to determine if the IBAN is in the correct format. This is a way to reduce failed transactions when processing international payments.
• Bank code: A four-character code that identifies the bank.
• Bank branch: A six-digit sort code identifying the particular branch of the bank.
• Bank account number: The last eight or fewer numbers correspond to the individual's account number. In general, account numbers that do not contain eight numbers are left-justified and preceded by zeros so they ultimately contain eight digits.