What is a virtual IBAN, and what are the benefits for my business?

What is a Virtual IBAN?
  • From customer point  of view, a virtual IBAN doesn’t differ from a regular IBAN account
  • It’s easy to set up for receiving cross-border payments
  • Better account management and reconciliation
  • Cost-effective solution for businesses making international payments
  • Top notch security with AML and KYC in place

Those who look to expand their business, most likely are in need of cross border payments and trading solutions. However, for a business to successfully trade internationally, they need a reliable banking and payment partner.

“What is an IBAN?” you may ask. IBAN stands for International Bank Account Number, and it enables businesses to trade internationally and make cross border payments, by sending and receiving multiple currencies.

But, in this day and age, everything has moved online, and virtual IBANs have become more attractive to the 21st century business. They hold many benefits and can ensure quick and easy cross border payments.

Let’s take a deeper dive into what a virtual IBAN is, and why it can be immensely beneficial for your business.

What are virtual IBANs?

To better understand what a virtual IBAN is, let’s start by looking at what a regular IBAN is. This number is unique to each customer and usually consists of around 34 numbers. This number allows the payment provider to know exactly which accounts must be debited and credited. 

Making use of a virtual IBAN is no different from a regular IBAN (from the customer’s point of view, at least). When payments are made they are reflected in the account, just like any other transaction.

A virtual IBAN is issued by financial institutions like EMIs or banks, allowing incoming payments to be rerouted to a different, physical bank account. The biggest advantage of having a virtual IBAN account is to be able to send and receive cross border payments. It makes business banking easier, especially when B2B payments are to be made. 

A virtual IBAN also allows the business to create multiple, unique and new virtual IBANs that still point to the same account. A way to think of a virtual IBAN is that it is a number that points to an overall, master account.

Multiple IBANs are helpful because they help the business keep track of the received payments. It is valuable because not every customer will use the reference provided, instead it is easier to have categories, like a type of product, and create a unique virtual IBAN for said product. 

Being able to send and receive payments globally opens up many doors to a business, and allows them to extend their value to the market.

What are the benefits of virtual IBANs?

Easy business account setup 

In contrast to regular business banking, the business needs to set up an account and  setting up a virtual IBAN is quick, simple, and straightforward. Some businesses might even offer to assist setting up the virtual IBAN remotely. This means the business owner can concentrate on running their business, rather than sitting in a queue at the bank. 

This is a banking-as-a-service product to make use of, especially when a business receives multiple cross border payments.

Better management

As mentioned before, virtual IBANs give business owners control over their incoming transactions. Because multiple IBANs can be created for different products and services, it becomes easier to manage incoming funds, which in turn makes business banking easier to manage. 

It is even possible to set up a new IBAN for each client to ensure that their references are correct and to fast tracking of any payments that were made. 

Each virtual IBAN account receives its own statements, meaning that statement reconciliations are made easier at the end of the month and financial year. It gives any business far more control over their finances and allows them to manage it far better.

Cost effective

Making use of virtual IBANs allows a business to have multiple accounts that can receive funds globally. Best of all, business banking fees are only added to the main account, making it far more affordable to run, in the long and short term.  

To be able to manage this without a virtual IBAN is quite a pricey affair. That is why it is more cost-effective for any business that trades internationally to make use of a virtual IBAN.

Faster transactions

Virtual IBANs allow for faster and more reliable transactions. The opposite might seem true as it may appear that there are more than one account, when in actuality there is simply one. Making and receiving payments from this account is made easier and faster. The verification of transactions is also faster when using virtual IBANs, and in some cases like in the EU, the transaction might even reflect the same day.

Better security

Financial transactions always require a secure gateway to ensure that funds are transferred securely, especially with business banking. And, having many accounts creates a risk for fraudsters and hackers. However, virtual IBANs eliminate that problem as it is a more secure way of doing transactions, as the funds are also only routed to one account. 

A virtual IBAN is kept redundant and encrypted in servers in the cloud. This means it has a low risk of fraud, and even downtime. On top of that, making use of virtual IBANs can ensure that a business can more easily comply with Anti-Money Laundering (AML) and Know Your Customers (KYC) security regulations.

Where do virtual IBANs fit in the context of embedded finance?

Banking-as-a-Service has become beneficial to almost all industries. Embedded banking has become quite the norm with the rise in online shopping and the popularity of ecommerce. Embedded finance is seen as the full integration of financial services into a business’s ecosystem, through the use of APIs. 

Virtual IBANs are one of the many financial services that can be embedded. Financial institutions may offer virtual IBANs for any sort of application – like online payments. They are used by both embedded finance providers, as well as non-finance companies to build solutions for specific applications.

When embedded finances and virtual IBANs meet, it is a match made in ‘payment heaven’. The two combined creates a seamless and user-friendly experience for anyone who makes use of the business’ site for online purchases. 

Likewise, it creates an easy to operate solution for businesses as they are able to keep track of all transactions and provide their customers with a great experience. 

Have a look at the options we can offer your business and book a call with one of our specialists who will advise you on the best solution for your business needs.

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