Virtual IBANs, sometimes shortened to vIBANs, support payments automation, efficiency, security, and offer a foundation for scalable international growth. But how do they work, and what do businesses need to know before choosing them?

In this article, we’ll explore the benefits of virtual IBANs, an essential tool for simplifying payment operations, improving customers' local payment experiences, and delivering multi-currency support.

An IBAN is a globally standardised system for identifying individual bank accounts in cross-border transactions. The IBAN was created to simplify and ensure the accuracy of international payments. The IBAN does not replace traditional account numbers or sort codes but acts as an additional identifier for international transfers, helping banks process payments efficiently and reduce errors.

It consists of up to 34 alphanumeric characters: a two-letter country code, two check digits, and a Basic Bank Account Number (BBAN) which includes the bank, branch, and account information.

The IBAN format is as follows: 

• A 2-letter country code (for example, GB for the United Kingdom or ES for Spain)
• 2 check digits that validate the IBAN before a payment is processed, used to reduce the risk of sending money to the wrong account
• The BBAN (Basic Bank Account Number), which includes the bank identifier, branch code, and account information

A virtual IBAN is a virtual account number that functions in the same way as a regular IBAN. While a regular IBAN is a 1:1 match to a real bank account, millions of unique virtual IBANs can hold balances within the same overall real account. This enables payments to be easily routed and reconciled in different ways, depending on a business’s needs.

Businesses can generate multiple virtual IBANs, each assigned to a specific customer, region, transaction type, or currency. Payments sent to a virtual IBAN are automatically routed to the main business account, with transaction details preserved for tracking and reconciliation. Virtual IBANs allow businesses to simulate having local bank accounts in multiple regions, without the cost or complexity of opening multiple physical accounts.

A virtual IBAN works like a standard IBAN for receiving payments. The business creates a virtual IBAN and shares it with customers or partners who can then make payments using the virtual IBAN.

The payment is automatically routed to the business’s primary account without the sender noticing any difference, but it is then sent to a virtual account that sits under the main operating account.

Simplified reconciliation and payment visibility

Managing payments can be challenging when operating with a single IBAN, as reference data with each payment is required to identify the payment’s origin and intended purpose. If the payee gets any information wrong, the burden falls on operations teams to determine where the money came from and reconcile the payment.

With virtual IBANs, each payment is automatically routed to a virtual account, which is held against a master real account. This increases payment transparency as the intended recipient of the funds directly correlates to the person, business or currency that the vIBAN is assigned to, reducing the manual errors and administrative workload required to reconcile the payment.

Virtual IBANs can be created, changed, and retired on demand, providing flexibility for quickly adapting to business needs or new markets.

Efficient, cost-effective multi-currency support

Virtual IBANs provide several advantages for businesses engaged in cross-border transactions or operating internationally. Virtual IBANs enable firms to hold, receive, and send payments in multiple currencies from a single master account, removing the need for separate local bank accounts across different countries.

Funds can be held in different currencies and converted only when market conditions are favourable, minimising exposure to poor exchange foreign exchange rates. This reduces administrative, maintenance fees, and transaction fees and significantly simplifies global transactions.

While all virtual IBANs are classified as virtual accounts, not every virtual account functions as a virtual IBAN. Virtual IBANs allow for external payments and tracking through the IBAN infrastructure, whereas virtual accounts can serve as internal references used to organise funds within a business’s banking framework.

ClearBank offers virtual IBANs as part of our virtual account structure. Read more about the difference between real and virtual accounts here.

A virtual account structure enables financial institutions to support many customers with one or just a small number of real accounts. Each customer has their own virtual account which, on the surface, behaves exactly like a real account. The underlying virtual account structure means the organisation can notionally segregate their customers’ money, while keeping the funds centralised in one or more real accounts.

Virtual IBANs are available across multiple accounts that we offer:

• Customer Safeguarded Accounts: Accounts that hold customers' funds separately from the business's own funds, ensuring compliance with safeguarding regulations.
• Client Money Accounts: Accounts used to receive and hold money on behalf of customers, separating customers' investment funds from the business's operating accounts.

Each of these account types can utilise virtual IBANs to provide flexibility and scalability for financial institutions, allowing for efficient management of customer funds and transactions.

ClearBank virtual accounts are built for flexibility with the freedom to open millions of accounts, each with its own addressable vIBAN, with no limit on the number of layers of logic a financial institution can create within their ledger.