For fintech companies sending and receiving payments on behalf of their customers, their bank coordinates are the ultimate touchpoint between said fintechs and customers. And maybe their most critical, as it is through these bank coordinates that customers will send money to and receive money from the fintechs’ products.

In an industry where trust is paramount, what these coordinates look like can be a game changer regarding user experience and brand credibility.

A survey run by Mambu Payments on 200 European consumers shows that said consumers are on average 83% more likely to use financial services that use IBANs from their countries than foreign ones.

In addition, relying on foreign IBANs can lead consumers to face IBAN discrimination. IBAN discrimination is a form of financial inequity that occurs when companies or employers refuse to accept an IBAN for payment in euros due to its country code, which can lead to customers being unable to access certain services.

More than preventing these issues, owning their own BICs and IBANs brings various advantages for growing fintech companies.

But first, let’s cover what they are and how they work.

The first thing to know is that only SEPA participants can have their own BICs and IBANs to send and receive SEPA payments.

Bank identifier codes (or BICs) are used to identify payment service providers (PSPs) across the SEPA zone. BICs are registered and managed by Swift, the global financial messaging network.

The BIC structure is specified by the ISO 9362 standard. BICs take the form of eight (also called BIC8) or eleven (also called BIC11) characters. A BIC8 identifies a PSP in a given country or city, while a BIC11 identifies a PSP’s exact branch. The BIC usually includes the PSP shortened name in the bank code, but is auto-generated by Swift. PSPs cannot choose their BIC. Also, payment institutions have 2 figures at the end of their BIC8.

BICs are registered in SEPA routing tables so clearing and settlement mechanisms can route SEPA messages to the right SEPA participants.

A PSP’s BICs country code, and therefore the PSP IBANs’ localisation (the link between BICs and IBANs is covered below), depends on where the PSP is licensed and where it operates branches. For instance, a PSP can be licensed in France and therefore have French BIC and IBANs, and have a branch in Italy with its own Italian BIC code and IBANs.

Note that IBANs contain the BIC’s information.

IBANs (for international bank account numbers) are used to normalize account numbers across more than 80 countries, including the 36 countries that form the SEPA zone. However, several major countries, including the US, Canada, Australia, China, and Japan, are yet to adopt IBANs.

SEPA payments use IBANs as the sole way to identify debtor and creditor accounts. IBANs are meant to facilitate account identification, payments, and international trade by using a common syntax and format. The IBAN format is defined by the ISO 13616 standard. IBANs always start with a two-letter country code, followed by two check digits, and end with the BBAN (basic bank account number).

The length of an IBAN depends on the country. Some countries, like France, utilise nearly the full character capacity with 27 characters, whereas others, like Belgium, adopt a more concise format comprising only 16 characters.

While the BIC code is not always present in an IBAN (it depends on the country), IBANs do contain a country code and a unique bank identifier within this country.

Therefore, IBANs are tied to a specific financial institution, so to a specific BIC.

Note that because a bank code is present in an IBAN, it is possible to deduce the BIC from an IBAN. Various entities offer this service, but it is based on not officially maintained registers, so users should be cautious of using paying services to do so.

In the case of SEPA payments, end customers will see BICs and IBANs when sending SEPA payments. They will have to inform the IBAN to send the payment to. 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.

Issuing an IBAN is a process entirely internal for the SEPA participant. They can issue whatever IBAN they want if they respect the IBAN structure and use the correct bank identifier.

For a financial institution, issuing an IBAN means generating a string of characters that respects the IBAN standards and use it to:

When a SEPA payment is sent to an IBAN, the payment is actually only routed to the PSP bank code or BIC. It is the PSP’s role to ensure that the IBAN exists, and to attribute the funds of the said payment to the IBAN. That’s why it is possible to instantly create a bank account with an IBAN directly accessible through SEPA.

As we covered above, SEPA participants have their own BIC and issue their own IBANs, providing the following benefits.

As SEPA participants, PIs and EMIs will issue IBANs in their name for held accounts. It means that when counterparties receive credit transfers or direct debits from PIs and EMIs or send them credit transfers, they will see the PIs and EMIs’ names associated with the payment. In other models, these counterparties would instead see the bank’s name for corporate customers or BaaS’ name for BaaS agents. In an industry where trust is paramount, this can be a game changer regarding user experience and brand credibility.

SEPA participants can issue their own IBANs in the countries they are licensed in or have branches in, instead of being restricted to the countries their BaaS or corporate bank issue IBANs for. It enables them to issue local IBANs in countries where customers and beneficiaries might not trust foreign IBANs and avoid IBAN discrimination.

SEPA participants have their own BIC. Their IBANs are tied to their BIC instead of their bank’s in the corporate customer model. This enables them to change sponsor banks without migrating their customers’ accounts and, therefore, without any impact on their customers, while they would have to communicate new BICs and IBANs to all their customers if they were changing banks as corporate customers or changing BaaS agents.

Fintech companies working with the corporate customer model and managing many incoming payments might need virtual IBANs to manage reconciliations at scale. Banks charge for this service. As SEPA indirect participants manage their own IBANs, they can open new accounts with dedicated IBANs or issue their own virtual IBANs for free.

As we mentioned, only SEPA participants can obtain a BIC in the countries they operate in and generate their own IBANs from there.

Becoming a SEPA participant is a significant project that brings major benefits to payment and electronic money institutions, from owning their own BIC and IBANs, as we discussed, to cutting their payment costs by 10.