IBAN is the term used to refer to the International Bank Account Number that is assigned to each and every account, anywhere in the world. There are some specific situations where in the IBAN codes become very important.
If you are reading this, then you have probably transferred or received funds from other bank accounts. In most cases, you would have received money from another account that is part of your own bank. An easy example to consider is when your salary is deposited into your account. In most cases, your employer would transfer funds from his account to your account. Since this is a transfer that is happening within a bank’s own network, just your bank account number would suffice. If you were to receive funds from a bank account from another bank that belongs to the same country as your bank account, once again the transfer is fairly simple and straight forward.
When funds are transferred within a country, there isn’t much room for confusion because all banks that operate in a given country will need to follow the set standards for banking of that nation. So, there really is no room for errors. However, problems may arise when you start dealing with bank accounts that are in a different country.
Each and every country follows it owns protocols and standards, as far as banking is concerned. It is impossible to imagine that a bank in one country can simply start communicating with another bank in a different country. There will be a lot of confusion, particularly with respect to bank account numbers. Even within a country, different banks might follow different bank account number formats. So, when you cross borders, bank accounts are going to be very different.
In order to avoid mistakes and problems that may arise out of these mistakes, the IBAN system was implemented. The IBAN code system assigns unique bank account numbers to every bank account in the world. A simple example will help you understand this concept. Let us say your bank account number is ‘100’ and the bank account number of the recipient of your funds is also ‘100’. However, these are the local bank account numbers assigned by your bank.
The same account numbers become IBAN codes once they are prefixed with the specific bank as well as country code. Since the combination of the country code and bank code will always result in a unique code, the IBAN system is flawless with unique number identification.