In the UK, we’ve come to appreciate instant, free payments through FPS (Faster Payments System) as part of everyday life. In Europe, however, it’s a different and more complicated situation regarding cross-border Single Euro Payment Area (SEPA) transactions.

The key principle of the Single Euro Payment Area is that all cross-border electronic payments in euros are as easy to make as domestic payments. One of the main benefits of this is that consumers and businesses can use a single payment account for all euro transfers.

So, for example, if you are from France but work in another European or SEPA country, such as Spain, your employer can pay your wages into your French bank account as if you were in your home country, rather than requiring you to open a second, separate bank account in Spain.

This is possible due to International Bank Account Numbers (IBANs) a core element to the SEPA framework, designed to support cross-border payments across the 36 SEPA countries, including the UK and EEA.

Every bank account in Europe is assigned an IBAN that can be up to 34 characters in length, depending on the location of your bank account. They contain a mix of letters and numbers, beginning with a country code that shows where the account is based - for example, UK bank accounts begin with the prefix ‘GB,’ French accounts with ‘FR’ and German accounts with ‘DE’.

While this theoretically should allow a seamless payment experience across the 36 SEPA countries, the reality is very different.

Simply, IBAN discrimination is when a company doesn’t accept a customer’s bank account to send and receive SEPA payments because the account is not in the same country in which the bank or company is based. This occurs for a variety of reasons, such as perceived higher risk associated with bank accounts located in certain EEA countries or limitations in the sending bank's processing capabilities.

This can cause significant delays and difficulties for individuals and businesses trying to make or receive payments. It can also lead to higher costs, as some payment processors may charge additional fees for processing payments from certain regions.

For example, in the scenario outlined above, if the employee wanted to pay for their Spanish mobile phone bill using their French bank account, the telco firm would be guilty of IBAN discrimination if it didn’t accept the non-Spanish bank account number.

IBAN discrimination is illegal under Article 9 of the SEPA Regulation ((EU) No. 260/2012), which forbids location requirements on SEPA payment transactions. Despite this, it continues to be a considerable problem, with banks declining cross-border SEPA payments at a far higher rate than domestic ones.

IBAN discrimination undermines the efficient operation of international trade and commerce, creating barriers to entry for businesses. The uncertainty associated with promptly sending or receiving payments can result in late payments, missed deadlines and cash flow issues, limiting their ability to compete and grow in the global market.

For consumers, IBAN discrimination is equally disruptive. European citizens living in a different country from their origin face unnecessary barriers to receiving salaries, affecting personal financial management, and even restricting access to vital goods and services.

There have been several high-profile cases where firms have been fined for IBAN discrimination. Back in November 2018, for example, Italian telecommunications giants Vodafone Italia and WindTre were each fined a total of €800,000 for not allowing customers to pay for telephone services without showing a local IBAN.

The European Retail Payments Board (EPRB) in November 2023 noted that IBAN discrimination is still an issue and urged EU Member States to enforce the EU law. Discussions at the ERPB are ongoing on how governments best tackle the issue.

In France, the General Directorate for Competition, Consumption and Fraud Control (DGCCRF) and the National Committee for Cashless Payments (CNPS) have declared they will fine anyone who discriminates against a non-French bank account. Refusing to use a European bank account for transactions in France is now punishable by a fine of up to €75,000 for individuals and €375,000 for legal entities.

One of the biggest problems is that reporting IBAN discrimination is tricky. As a customer, you can make a complaint, but it isn’t reported to a single central authority, so the true scale of the problem has been unclear.

In the absence of such a reporting mechanism, a coalition of fintechs has taken a proactive approach. Firms including Wise, Revolut, Raisin and N26 have come together to help tackle this issue, encouraging customers to report any ongoing IBAN discrimination at Accept my IBAN, with the anonymised data passed on to the relevant authorities and the European Commission. Starling Bank, Revolut, and Wise have also created letter templates for their customers to use in case they need to raise a formal complaint.

One of the reasons that ClearBank selected the Netherlands as the base for our European bank is because Dutch IBANs are widely accepted across the EU.

IBAN discrimination is a hurdle to achieving the EU’s aspiration of a single financial market where money flows freely across eurozone member states. Despite clear regulations against such practices, it continues to have broad implications for businesses, consumers, and the fintech sector across the EU.

Ultimately, a joint effort by regulatory bodies, financial institutions, and the broader fintech community will be crucial to highlighting the ongoing issues and finding ways to eradicate it. ClearBank will be part of those efforts to ensure that SEPA payments work as intended, for the benefit of every business and consumer that need real-time, secure payments to work on time, every time.

Alexandra Rivas-Gale, is the Vice President of Product at ClearBank, spearheading the company's client product strategy, digital assets development, and international expansion initiatives.

Before joining ClearBank in 2022, Alexandra was Vice President within the Wholesale Payments business at J.P. Morgan, Alexandra brings extensive experience managing SEPA Instant in the EMEA region. Prior to her focus on payments, she worked in J.P. Morgan’s Real Estate team and at Citi Private Bank across New York and London in the Investment Finance sector.