What is a Virtual IBAN? Its Purpose, Uses, and Functions
Virtual IBANs Definition and Purpose
A virtual IBAN is an international bank account number issued virtually by a financial institution or a bank. It allows an individual or a bank to receive and send international payments using this account.
The purpose of a virtual IBAN is to ensure smooth payment journeys for businesses and individuals, saving the cost of transactions and paperwork. It performs the same as a regular IBAN. However, it is issued virtually.
Unlike a traditional IBAN, which is typically tied to a single bank, virtual IBANs can be multiple unique identifiers that maintain balances within a shared underlying pooled account. You can have multiple accounts from any bank or virtual IBAN providers for your business, where all sub-accounts are linked to a central master account, allowing you to reconcile payments. This central master account offers a single true source by holding the amount of all sub-accounts.
The reason for opting for multiple virtual IBANs is to allocate to different projects, clients, or departments in an organization to manage funds. Though there are multiple accounts, the central account remains balanced. Using this account equips you with added security, allowing businesses to receive payment by sharing a virtual IBAN with their partners or clients and keeping other information confidential.
Difference between a Physical and Virtual Bank Account
A virtual account is also referred to as a digital account, and similar to the standard bank account, it can also be used to send and receive funds. Nevertheless, a virtual account is not a bank account, as it cannot hold funds. It is associated with a master account that has the balance, and vIBAN acts as a routing point to channel money while supporting the reconciliation of the balance of the central account. The purpose of a virtual bank account is to perform international transactions without the physical management of the account and with less pain for the accounting teams.
Virtual IBAN Format
A virtual IBAN or vIBAN is identical to a conventional IBAN that is composed of 34 digits, including letters and numbers. It has the name of the account holder, the country where the bank is located, and a combination of other account details.
For instance, the first two characters are letters representing the country code, and the next two digits validate the transaction. The latter four letters belong to the bank issuing your IBAN, and the next five numbers are your bank’s branch code or sort code. Finally, the last 18 digits are your account number.
The Role of Virtual IBAN in Supporting Your International Business
The extended functionality and usefulness of a virtual IBAN support a number of uses for businesses operating internationally. One of the key functions of a vIBAN is to enable you to process transactions and manage foreign exchange business accounts just like a standard account, but with additional features, providing you with more flexibility. It can also be integrated with your Forex back office software to support your day-to-day operations, including sending and receiving payments from businesses and/or individual users. Regardless of how many virtual IBANs sub-accounts you have for your business, automatic reconciliation eliminates the need for manual calculations at the end of the day to determine the total balance.
Crypto Currency Support: With a virtual IBAN, you can open doors to fiat currency that allows you to trade the most popular cryptocurrencies or accept those as a form of payment. It is also beneficial for those already dealing with this currency. However, you need a segregated account to manage crypto or fiat payments into that account.
Referencing System: A bank account number serves as an identifier for each customer. This unique identifier ensures that no two customers share the same credentials or accounts. Therefore, when the bank receives a credit to its network with the correct reference identifier, it can easily determine who that money belongs to.
Multicurrency Support: Combining your vIBANs with your multicurrency account helps businesses send and receive payments from other countries without additional FX costs on every transaction. Though your multicurrency account has a single IBAN, you need multiple accounts to hold multiple currencies. In other words, businesses can send and receive payments in local and international currencies and access local payment rails with multicurrency IBANs without opening another physical account for a new currency. It will also save you from additional FX charges that otherwise are incurred on every transaction you make.
Functions of a Virtual IBAN
A virtual IBAN is a significant addition to businesses performing trade internationally and those in the B2B space dealing with international clients. Using multicurrency accounts with vIBAN empowers businesses with Fintech solutions ranging from automated reconciliations to low transaction costs. Following are some crucial functions of a vIBAN.
Reducing the amount of bank accounts that finance teams or businesses needed to maintain.
Providing more control over international transactions and reporting with higher visibility into payment rails.
Streamlining cash management and reconciliation of your master account with multiple virtual IBANs.
Besides the above functions, another key advantage of a virtual IBAN is that the payer needs a unique identification or a name for a transaction instead of a 34-character account number with other details to receive funds. Using a vIBAN not only saves your transaction costs but also facilitates the transfer of a variety of currencies into a central operational account. This, in turn, ensures automated reconciliation, thereby reducing the time and manual efforts required.
The Bottom Line
Using a virtual IBAN account helps businesses overcome the pain of using a standard account for international payments. It allows sending and receiving funds with little transaction costs. However, a virtual IBAN is for one currency, so you must use a different one for each foreign currency to meet your foreign exchange needs. Multiple vIBANs are connected with a central account that automatically reconciles, ensuring your ledgers are consistent.