IBAN: what is it, and what is it for?

When a transfer is made, the IBAN alphanumeric code (International Bank Account Number) is always used. As its name indicates, it is used to identify any bank account in the countries that use it. It has its origins in the EU, but many other countries such as the USA, Canada and much of South America have already joined. As a result, the IBAN system is used all over the world.

Why was it created? Previously, international payments posed certain problems for users. Each country had its own conditions and rates. Sometimes, it was also difficult to know what country a certain bank account was in. With the arrival of this code, financial institutions were able to automate their transfers. 

The function of the IBAN is similar to the euro's, since it allows transactions to be made as if they were in the same country. This eliminates the bureaucracy and the misunderstandings that used to occur, streamlining the process. 

Applications of the IBAN code: the SEPA

After the entry into force of the euro (2002), the EU achieved its goal of having a common currency. However, there were still problems with some monetary transactions. Each Member State still had its own bank accounts and when it came to transferring money, it was difficult to know what country it came from. To simplify things, the EU launched SEPA (Single Euro Payments Area) in 2014. 

The 27 EU member states, as well as Iceland, Liechtenstein, Monaco, Norway, San Marino, Switzerland, Andorra, Vatican and the United Kingdom (despite Brexit) belong to it. In general, the coverage does not extend to the overseas territories of countries such as France, the United Kingdom or the Netherlands. And in Cyprus, only the part controlled by Northern Cyprus is included.

In parallel to the emergence of this new financial region, the IBAN code was introduced in bank accounts in order to replace the previous Bank Account Code (CCC). In the case of Spain, accounts had 20 digits previously. With this new change, and as mentioned earlier, they all transitioned to 24, starting on 1 February 2014. The other Member States also went through similar processes. The last step occurred in 2016, when the deadline for countries outside the eurozone to migrate to this SEPA system expired. 

The applications of this single euro payments area extend to several sectors. These include transfers, direct debits and cards. In this regard, the advantage for Spaniards is clear: they can make transfers to any SEPA country faster.

IBAN in countries without SEPA

The IBAN code is used beyond the SEPA. More than 80 territories in the world are currently required to use this system. These include Kazakhstan, Lebanon and Kuwait. In others, such as Iran, Brazil and the Dominican Republic, its use is recommended. This number will probably go up in the future, since the IBAN provides a fast and easy way to identify bank accounts worldwide.

Now that you know more about the IBAN code, its origin, its composition and its applications, find out more about the world of finance and about CaixaBank bank accounts.