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How to deal with IBAN discrimination

In order to harmonise the European payments and finance landscape, various regulations and pieces of legislation have been introduced both at EU and national level with a goal to standardise payments and ensure ease of access for millions of people on in the EEA and EFTA.

Sometimes, however, this payment landscape can be difficult to navigate with complex terminology, difficult legal jargon or lack of clarity on where you stand.

That’s why, and in light of this, it’s important to know your rights as well as what to do if they’ve been violated.

In this blog post, we discuss the issue of IBAN discrimination and what to do if you find yourself in this situation. 

But first, let’s take a closer look at what an IBAN is. 

What is an IBAN?

An IBAN is an acronym that stands for International Bank Account Number.

It consists of up to 34 alphanumeric characters which uniquely identify an individual account at a specific financial institution in a particular country.

This, in theory, makes all accounts within SEPA “reachable”, at least by payment service providers in member states.

Here’s how an IBAN is structured:

  • Character 1-2: Country code 
  • 3-4: Two check digits 
  • 5-12: Domestic bank account number 
  • 13-22: Account Number (or routing information)

What is SEPA?

Discussing IBAN discrimination without introducing SEPA to the equation would be futile.

So, what is SEPA?

SEPA stands for Single Euro Payments Area and as of July 2020 consists of  members of the European Union, the four member states of the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland[1]), Andorra, the Vatican City, Monaco, San Marino, and the United Kingdom (up until the 31st of December 2020, unless an agreement is reached) – comprising 36 states that are members of the SEPA area.


[1] Switzerland ascended in to the SEPA via a bilateral agreement with the EU, while the other EFTA countries ascended via their EEA memberships.

SEPA was introduced with the purpose of introducing uniform procedures and standards for euro payment transactions in the European Economic Area.

In effect, it forces payment service providers to harmonise and “sync” their payment products in order for them to be accessible to every other participant in the SEPA.

The SEPA payment scheme was first introduced in 2008, but it initially functioned parallel to national payment schemes. On 1 February 2014, the SEPA scheme was fully integrated in all Eurozone countries. Since then, 99% of transfers in euro are carried out according to its procedures. 

As a result, both domestic payments and cross-border payments within the EU should be settled under the same standards and procedures.

What is IBAN discrimination?

Despite the intended unification and harmonisation of standards and procedures by SEPA in the EU for euro transfers, there have been and continue to arise instances of IBAN discrimination.

But what does this entail?

In short, IBAN discrimination occurs when a company or an institution within the SEPA region does not accept an IBAN issued by a payment service provider based in any other SEPA member country and requires you to input an IBAN starting only with the domestic country code of a specific state (in example DE, FR, etc.) or requires you to input an IBAN in a domestic format (in example a 32-character long number).

This is an infringement of Article 9 of the SEPA Regulation (Regulation (EU) No 260/2012), which prohibits the different treatment (by making irrelevant the circumstances of the country of origin of the IBAN) of IBANs, provided that the latter are reachable though the SEPA scheme.

How can I deal with IBAN discrimination?

Luckily, you have recourse to action if you’ve been the subject of such discrimination as the abovementioned SEPA Regulation is under the supervision of and subject to financial supervision of various financial authorities.

There are several steps you can and should take if you face IBAN discrimination.

Here are some of them:

  • You should first inform the company or institution which has refused to complete your transfer that they are in breach of Article 9 of the SEPA Regulation.
  • If they do not respond, send a formal written complaint.
  • If there is further non-compliance, get in touch with the relevant regulatory body or competent authority in your country.
  • Tell myPOS about it by emailing us at help@mypos.com.

To make things even easier, we’ve prepared some template letters that you can use when addressing your case of IBAN discrimination with the relevant company and/or authority.

Template: Formal complaint to a company

Dear Sir/Madam,

My myPOS Euro-denominated IBAN [insert your IBAN number] is a valid account that supports SEPA payments.

On [insert date], I attempted to [make/receive] a transaction in the abovementioned account, but was refused on the grounds that [insert reason you were given].

Please note that IBAN discrimination is a violation of Article 9 of the SEPA Regulation and refusal to comply will be reported.

I trust you will be guided accordingly and authorise my details in your systems to allow direct debits and credit transfers to my account.

Yours sincerely,
[Your name]

Template: Formal complaint to the relevant authority

Dear Sir/Madam,

Despite my formal written complaint to [company name] on [date], which you will find attached hereto, the company continues to refuse transactions to my Euro-denominated IBAN.

As explained in my formal complaint to [company], on [insert date] I attempted to a transaction in the aforementioned IBAN, but was refused on the grounds that [insert the reason the company provided].

In terms of Article 9 of the SEPA Regulation, such refusal constitutes IBAN discrimination and I would be grateful if you would act accordingly and proceed in assisting me to get redress regarding this matter.

Yours sincerely,
[Your name]

Conclusion

There’s no reason why you should be prevented from making or receiving payments within the SEPA area with your IBAN, provided that the latter is in euro. All of myPOS’ euro IBANs are reachable though SEPA.

Any such practice is considered IBAN discrimination and it is against the law.

If you find yourself being the victim of such practices, take the abovementioned steps as you seek a resolution to your problem.

It’s important to know your rights and what methods of action you have available to you so that you don’t face this type of discrimination now or in the future. 

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