IBANs are the banking front door of most European fintech companies. Whether it offers its customers the ability to top-up a digital wallet, send SEPA payments on their behalf, or receive money collected on their behalf, a fintech company will have to expose IBANs to its customers.
But for trust reasons, fear of IBAN discrimination, or experienced IBAN discrimination, consumers can be picky when it comes to interacting with some IBANs and thus choosing which financial services to use.
At Numeral, we wanted to quantify that. So we ran a survey. But first, we need to understand what IBANs are and when consumers see them.
IBANs (for international bank account numbers) are used to normalise account numbers across more than 80 countries, including the 36 countries of SEPA.
IBANs are the only account numbers usable for SEPA payments.
IBANs always start with a country code and include a bank code, which is the bank code of the financial institution holding the account linked to an IBAN.
In the case of SEPA payments, end customers will see BICs and IBANs when sending SEPA payments. They will have to fill in the IBAN of the payment’s beneficiary. Financial institutions will show the name of the financial institution holding the account corresponding to the IBAN to their end customers. Examples include when the end customer needs to top up a digital wallet via SEPA payment, pay a bill, or send money to a friend.
And customers can be reluctant to make payments to unknown or foreign IBANs, for various reasons.
Since the early 2010s, IBAN discrimination has been a prevalent form of financial inequality affecting customers throughout the European Union. This form of discrimination arises when companies or employers reject an IBAN for euro payments based on its country code, thereby preventing customers from accessing certain services. Although this practice was outlawed in 2014 (article 9), fintech companies operating across Europe continue encountering issues stemming from it. For UK-based fintech companies in particular, Brexit has reignited apprehensions regarding this issue in relation to British IBANs.
Consumers might therefore be wary of using the services of a fintech company that will require them to send payments from and receive payments to a foreign IBAN.
Beyond IBAN discrimination itself, consumers might not trust sending money to an IBAN with a foreign country code and corresponding to a financial institution located abroad. Even within the same country, consumers might not want to send money to an account held at an unknown financial institution.
To understand which components of IBANs and bank coordinates influenced consumers when selecting financial services, we ran a survey on 200 French consumers via Survey Monkey. France was chosen as, according to Acceptmyiban.org, it is the country with the highest reported occurrences of IBAN discrimination.
In the first question, we asked consumers how likely they were to trust and use financial services that required them to send payments to 6 different bank coordinates, with the following varying characteristics:
The results are striking: the most significant criterion is the localisation of the bank coordinates, and therefore IBAN.
Indeed, surveyed French consumers were on average 83% more likely to use financial services using a local, French IBAN compared to other alternatives.
In more detail, they were 45% more likely to use services using French IBANs than German IBANs, and 110% more likely to use services using French IBANs than Lithuania or Gibraltar IBANs.
We also surveyed French consumers on their IBAN discrimination experience.
25% declared they experienced IBAN discrimination when using a foreign IBAN, and 29% when using an IBAN of an account that was not in their name.
IBAN discrimination is two-fold. Consumers face it when using foreign IBANs, or IBANs in the name of payment services providers, and fintech companies indirectly face it themselves when it comes to consumers evaluating them.
There are several ways for payment service providers to mitigate IBAN discrimination, from choosing local partners that have their own IBANs, or getting IBANs in their name by becoming SEPA indirect participants.
Numeral has helped leading fintech companies such as Spendesk to become SEPA indirect participants. If your company is experiencing IBAN discrimination and looking for local IBANs, do not hesitate to contact us.