What are virtual IBANs?

8th March 2021
What are virtual IBANs?

The ultimate guide to virtual IBANs

Virtual IBANs are a valuable tool for businesses looking to reduce the cost of cross-border payments, expand into new territories, or streamline back office operations including settlement and reconciliation.

They are also a crucial element of the Banking-as-a-Service landscape, which provides broader access to financial services for B2B and B2C brands and their customers.

So what exactly is a virtual IBAN, how can they help your business, and how do you get one?

Virtual IBAN definition

A virtual IBAN (or International Bank Account Number, or vIBAN) is a virtual account reference number allocated by a banking or payments provider in order to provide local payment options in multiple territories, and used to route incoming payments to a different nominated bank account.

For the party making the payment, the virtual IBAN is functionally identical to a conventional IBAN: it is a series of digits that identifies the account to which money should be sent. For the payee, however, virtual IBANs perform several important functions that cannot be fulfilled with conventional bank accounts.

How could virtual IBANs help my business?

There is a range of benefits associated with virtual IBANs, and they have a number of major use cases.

Virtual IBANs are most commonly used as a cost-saving measure for businesses that are transacting across borders. Sending and receiving international B2B payments can be extremely costly (indeed, sometimes prohibitively so). To solve thi, virtual IBANs allow payees to provide local payment information, denominated in the local currency. Payments are then routed to the payee’s chosen bank account in the territory of their choosing.

Virtual IBANs are also vital for payments made by consumers, for whom local payment details are likely to be a prerequisite for doing business. For example, digital currency businesses need to enable users to add funds to their wallets using their local fiat currency. Virtual IBANs are the most efficient means by which this can be achieved.

As we can see, virtual IBANs have wide-ranging applications for businesses wishing to achieve international scale. In order to enter a new territory, businesses must have access to local banking. Virtual IBANs are a simple and low-cost way to do this, and represent significant resource savings when compared with the burden of establishing banking relationships in every new territory.

But virtual IBANs are not only about cross-border payments. They are also an important tool for streamlining back office processes, especially for marketplace and platform businesses. For example, businesses might choose to allocate virtual IBANs to individual customers or suppliers in order to automate reconciliation tasks. Segregated accounts can also be used to improve settlement experiences.

How are virtual IBANs related to Banking-as-a-Service?

Virtual IBANs are often mentioned in the context of Banking-as-a-Service (BaaS). The latter term describes the provision of banking and payments services through APIs. BaaS providers offer access to specific parts of the banking ‘stack’, for example accounts or card processing facilities.

Banking-as-a-Service is enabling a new generation of fintech innovation. It is allowing brands to embed financial services within their existing products and services; is broadening access to financial services generally; and is enabling product-focused providers to build banking and payments services that fit specific or niche verticals or use-cases, with far superior experiences than those offered by the legacy financial institutions.

Virtual IBANs are a core offering within the Banking-as-a-Service ecosystem. BaaS (or ‘Embedded Finance’) providers may offer virtual IBANs for any of the applications suggested above, and they are used by both providers and brands to build solutions for specific applications.

They are also emblematic of the benefits associated with the ‘platform’ model, in which an entire range of products and services are offered via a single point of access. Virtual IBANs are a way to avoid the burden of negotiating relationships with multiple banking providers in multiple territories. In a similar fashion, BaaS platforms are a highly effective way of ‘bundling’ BaaS services, removing the need for brands to contract with multiple providers specialising in different parts of the banking stack.

How do I get a virtual IBAN?

Virtual IBANs are increasingly common, and are gaining greater visibility thanks to the popularity of apps and services such as Transferwise’s Borderless Account. There are now many providers offering access to virtual IBAN services.

However, not all virtual IBAN providers are born equal. If you think your business could benefit from a virtual IBAN, it’s important that you choose the right banking partner. A reputable BaaS platform such as OpenPayd offers access to virtual IBANs as part of a comprehensive banking and payments ecosystem. OpenPayd enables businesses to build their own bespoke banking solutions in a modular way, ‘plugging in’ services including acquiring, FX, payments, and of course virtual IBANs.

BaaS allows businesses to leverage the power of banking and payments to help them build and grow - and virtual IBANs are a fundamental part of that offering.

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