Wednesday, April 25, 2007

Still confused about BICs and IBANs?

Following on from my comments last week about the mishandling and confusion surrounding correct usage of BICs and IBANs for eurozone payments, Eiger Systems, which provides a data validation solution for bank account identifiers and international bank account numbers, has added further fuel to the debate by saying that it is not enough to just have the correct IBAN (International Bank Account Number) on cross-border euro credit transfers.

From 1 January this year, the inclusion of BICs and IBANs became compulsory for cross-border credit transfers in the eurozone as well as countries such as Iceland, Liechtenstein, Norway and Switzerland. BICs and IBANs were introduced as a means of increasing the straight-through processing of cross-border payments in euro, thereby reducing the costs associated with manual repair and handling of payments.

Yet, whilst BIC and IBAN information is included on most bank account statements, and has been for some time, there still appears to be a general lack of understanding on both corporates' and banks' part as to correct format and handling of this information.

In my previous post, I remarked on LogicaCMG's survey findings which indicate that banks expect payment processing costs to increase in the first year of SEPA's introduction as they anticipate that not all cross-border transfers will contain the correct account ID information, which means payments will be delayed or require manual repair.

And whilst there are software solutions that enable companies to check the correct formatting of IBANs, Jonathan Williams, principal market strategist, Eiger Systems maintains that the accuracy of the IBAN data also needs to be checked - an extra layer of verification that not all software solutions provide, Williams claims.

There is a world of difference between correctly formatting an IBAN and ensuring that the data underlying the IBAN is correct, or even exists,” says Williams. “Banks and corporates must make this link between format validation and data validation. Only if the data is validated at the same time that the format is validated can corporates hope to avoid repair or rejection charges and the payment delays that inevitably result."

In in its efforts to streamline, standardise and make cross-border euro credit transfers more cost-effective (or the same as domestic transfers), the industry appears to have only added an additional layer of complexity for customers.

Can the industry safely say that it has gone out of its way to adequately educate customers and banks about the correct use of BICs and IBANs? More importantly, are companies likely to face increased costs and inefficiencies pertaining to cross-border euro credit transfers post-SEPA because of incorrect account formatting?

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