What is IBAN you ask? Well, it can mean a lot of things. Iban can refer to a group of people with a fierce reputation for tribal expansion, including a historic practice of headhunting, located in Borneo, Brunei, and West Malaysia. Iban also refers to a Black Knight fictional character in a popular medieval fantasy game. The focus of this article is on a less exotic IBAN: The International Bank Account Number (IBAN) and the best practices in IBAN validation.
If you are chartered with moving money to pay your employees, you will be exposed to IBAN. You should become familiar with IBAN rules and formats. These rules form an internationally agreed system of identifying bank accounts across countries. IBAN facilitates the communication and processing of cross-border transactions while greatly reducing the risk of errors of transcription. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is the formal registrar for IBAN under the International Organization for Standardization (ISO) 13616-2:2007.
IBAN was a standard initially developed to facilitate payments within the European Union. All 34 Single Euro Payments Area (SEPA) countries use the IBAN standard. It has now been implemented across the Middle East, North Africa, the Caribbean, and further IBAN adoption is expected to increase globally. A full list of current IBAN compliant countries is available at this link. Some non-European banks (including some US banks) may not currently recognize the IBAN standard, meaning, they might not validate the IBAN prior to sending any transfer. But they also may not treat IBAN any differently from any other bank account number, still rendering it useful for completing a transfer.
The IBAN is comprised of a maximum of 27 alphanumeric characters within Europe and a maximum of 34 characters outside of Europe. It includes a country code, two “check digits” used to detect errors (these are a helpful sanity check to confirm the bank account integrity prior to submission), and then a final number that includes the bank account, branch identifier, and routing details. This encompasses all the information necessary to get a payment from one bank to another bank with no or minimal error. Here is a more detailed breakdown of how these numbers work:
“GBkk bbbb ssss sscc cccc cc”
• GB = Two character ISO country code for the United Kingdom
• kk = check digits
• b = Business Identifier (BIC) / SWIFT bank code
• s = Bank and branch code (sort code)
• c = Account number
The steps to validate an IBAN are straightforward. However, the math requirements on the final step do not easily lend themselves to manual checks. The first few steps are designed to turn the IBAN, which consists of both numbers and letters, into an integer (numbers only). The final step is to perform a “mod-97” operation, which essentially means you will divide the very long IBAN, expressed as an integer by 97. If the remainder =1, then the IBAN has been validated as genuine. (Note: this validation exercise is not foolproof, as it cannot detect minor errors at the source, for example, a “3” that should be a “4”.)
Here is a link to a simple explanation of IBAN, including a section on how to check an IBAN that describes the steps in detail.
Rather than attempt validation by pencil or calculator, it is, of course, more practical to perform this operation via a computer software application that has the capability to handle integers of more than 30 digits. There are various software vendors offering inexpensive or free IBAN validation modules on the internet. And, there are even online sites that have these operations embedded, so you can enter your IBAN and the site will verify it for you. Be aware that plugging real account numbers into a non-secure website will open you up to the possibility of fraud and theft if the number is captured by a bad actor in transmission. So, we recommend purchasing an upgrade to a secure/encrypted platform should you choose to employ a web-based solution.
For executing payroll across borders, IBAN verification is essential in order to decrease errors, improve the efficiency of money transfers, and help ensure your employees are paid on time.
If you have any questions regarding the validation of IBAN for your employee payments, please contact us. We have an amazing, full-service Treasury Management Team at Celergo. We are here to help, so please contact us!
**This article is for informational purposes only. It is not intended to constitute legal advice.