EU FinTechs, Central Bank of Ireland Take On IBAN Discrimination

The Central Bank of Ireland recently announced that it was writing to all Regulated Financial Service Providers in the country, as well as a range of business and professional representative bodies, to remind firms of their obligations to prevent IBAN discrimination.

What is IBAN Discrimination?

The International Bank Account Number (IBAN) is an internationally-agreed system for identifying bank accounts across national borders.

Since 2014, any bank or business based in the Single Euro Payments Area (SEPA) has been required by Article 9 of the European Union’s SEPA regulation to accept IBANs from any member state as valid for either incoming or outgoing SEPA debit or credit payments.

That means an Irish business can’t refuse payment from a SEPA-based account just because they don’t have an Irish IBAN, for example. Likewise, Article 9 also mandates that an employer can’t require that its employees hold local bank accounts to get paid.

The SEPA legislation is an integral part of the EU’s digital single market initiative. Alongside the revised Payment Services Directive (PSD2) implemented across the U.K. and Europe since 2018, it has been central to creating a more open environment for banking in the eurozone and has helped to propel the growth of open banking in the EU as a whole.

Moreover, because the SEPA extends to the U.K. and Switzerland, where several banks allow customers to hold and transact in euros, breaches of Article 9 extend across the entire region, including countries not bound by EU law.

Read more: UK Open Banking Users Top 6 Million

The issue of IBAN discrimination is especially important for the Republic of Ireland, where census data shows that more than half of all immigration originates from SEPA countries. For the thousands of SEPA migrants in the Republic of Ireland, as well as the many U.K.-based companies that do business on both sides of the Irish border, IBAN discrimination is an unnecessary and illegal burden.

Why Discriminate?

A euro is a euro no matter where it originates from, so why would any employer, merchant or bank refuse to process a payment just because the other account has a foreign IBAN?

Ultimately, many of the issues with IBAN discrimination boil down to a lack of knowledge of the rules. Not all companies and direct debit issuers are familiar with the relevant regulations; for example, many organizations aren’t aware of their obligation to accept euro payments from IBAN numbers regardless of the SEPA they are from.

There is also an issue with outdated processes and technologies. Banks and companies that do the majority of their business in a single country may need to update their systems to be able to process IBANs from other SEPA countries, and failure to do so might result in their reluctance to work to accept foreign IBANs they’re not familiar with.

End in Sight?

Following the end of the transition period during which the U.K. finalized its exit from the EU, neobank Starling reported its own difficulties with IBAN discrimination. In February 2021, Starling reported that companies across the EU were refusing to accept payments from U.K. euro account holders because their IBAN started with the country code GB.

And the U.K.-based neobank is not the only FinTech company to have encountered this issue.

Cross-border transfer business Wise noticed that some banks and merchants around the world weren’t accepting their customers’ IBANs after it started issuing them with numbers that started with the BE country code (Belgium).

It prompted the firm to take action to tackle the issue, eventually launching the Accept My IBAN campaign with a coalition of other FinTechs and nonprofits to raise awareness, gain insights into the industries and countries most guilty of the practice, and report complaints to the relevant authorities.

For example, of the reports made to acceptmyiban.org between March 2021 and May 2022, over half relate to issues with telecoms and financial services providers. In that same time period, France accounted for 39% of all complaints.

In a recent interview with PYMNTS, Steve Naudé, head of Wise Platform, said that bringing attention to the scale of the problem is essential to ending the problem: “Highlighting that this is very widespread will really help get the attention of the right people — both policy and in regulators and government to help enforce the rules that are already there.”

See more: Lackluster Rollout of SEPA Instant Stymies EU Payment System Success, Says Wise Product Chief

The good news is that things are changing. As of November 2021, French authorities have been able to issue fines of up to €375,000 to companies found to be discriminating against foreign IBANs, and the latest announcement from the Central Bank of Ireland is surely a promising sign.

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