The first step in SEPA was the Euro, the second one was IBAN and SCT/SDD schemes implementation, and I propose the third one is enabling inclusion and mobility.
As I stumbled across the article from Lars Markull, “Brief history of IBANs and current Fintech challenges” it stirred up some thinking and ideas I was having in the past.
The article is a great source on what exactly IBANs are, but that is irrelevant for the end user. The interesting part is the struggle these have had with the change from their regular and accustomed (local) BBAN to the (worldwide) standardised IBAN. This struggle is still happening on a day to day basis for a lot of people, but over time is less visible (people get by, they ‘survive’). It’s like most people above a certain age are used to think of value or relative value in their local currency still, even though the Euro was introduced in 2002 already.
But that will fade away eventually, and everybody is happy to use IBANs now. WRONG, there is a true, and very impacting form of discrimination happening with IBANs, as the Lars alluded to in his article and that is also a true topic in big EU countries as has been highlighted by Transferwise, and a lot of users that are working with neo-banks that use their rights to offer financial services across the European Economic Area.
On top of that, in light of recent events with regards to the death of George Floyd, inclusion is a big topic. Because bigger and more established market players are struggling there, FinTechs are jumping into the opportunity, to offer what many call essential financial services to people who need them. It can be very daunting to sign up for a financial service, and the neo-banks and FinTechs have made that element in the digital age easier and aim to achieve frictionless signup.
There are a lot of stories about the success the neo-banks achieve in markets that have incumbents lagging on the digital and mobile offering.
Take N26, they have been having fun marketing with their #nobullshit marketing campaign in 2018, expressing “Bank Branches are soooooo 90’s”. They are right, the concept is no longer for this time, and it’s evident that being a Bank in Germany this has a specific meaning in that country. Last year, N26 boasted they exceeded 1 million customers in France, putting the French market as a top priority.
But even as N26 offers compelling services and innovative ways of managing your finances in this digital and mobile world, the French users ‘feel’ the discrimination for real. Many of the systems used in France have transitioned from the local Bank Code/Guichet Code to the use of IBANs, but in the process have made it so “only french” IBANs can be used. N26 also has a specific page highlighting the issue, check the page title.
I’m talking about payroll systems, social security benefit systems, accounting systems, … They are all migrated from the local french BBAN to the local french IBAN.
This has brought an unintentional twist to the N26 marketing slogan, where in order to offer local IBANs in Spain, Italy and other EU countries, N26 had to build branches that are soooooooooo 90’s, and as a result needs to deal with the specifics that can have a huge operational impact.
Similarly, French banks have been caught charging international money transfer charges for sending a SEPA transaction to another country. Or they intentionally have users jump an additional hoop to accomplish this.
German banks have been no different, but they are confirming faster as soon as they figure out they are not in line with the law. Most notably, due to some filtering/blocking of non DE creditors has forced/kept the need for companies that have significant customer base in Germany to keep sometimes expensive German accounts in place.
I think there are numerous examples of this in a day to day context, and in time these kinks will all be worked out, but not without leaving a fair amount of frustration and putting additional constrains in an ‘open’ European economy.
This is where one of my ideas I had a year ago comes in.
Why not have a true European IBAN, a number that can be EUXX ABCD ABCD ABCD ABCD.
This number could be assigned to any legal entity having a bank account, but is not the “primary” bank account. For that the entity has to select a bank in a country to open an account and have a ‘local’ IBAN associated to that bank.
But basically the EU number can be used in all systems (from payroll to accounting to social benefits), and all these systems don’t have to support all IBAN countries, but they need to support the EU ‘country’.
Maybe this can be institutionalised through extension of the use of The SEPA
Proxy Lookup scheme.
From a user perspective the IBAN is ‘like a phone number’, and usually you have your beneficiaries saved, just like you have your friends in your address book. That means that we would only need to remember it once.
There is a downside to this, and it’s the same downside as using the phone or email address. This is, in the context of GDPR a Personal Identifiable Information (PII) element. This downside has been addressed already with the use of any IBAN number systems to be considered PII anyway.
Just, using EU IBANs would leverage interoperability within the existing SEPA SCT and SDD schemes, and would allow another cool/neat feature. The legal entity can change the underlying “real” IBAN associated to the EU IBAN, and as such we achieve mobility that has been a true struggle in the setup of SEPA with IBANs due to them linking to the financial institution issuing them.
Some other hurdles to overcome. AML/CTF transaction monitoring and reporting. These can be resolved using smart services like directory lookups to enhance the reporting data, considering the time of transaction also as a key element to map the underlying local IBAN.
I’m sure FinTech would be supportive of this, Transferwise, N26, Revolut, Stripe, Bunq, etc… step up your lobbying and push for the EU to start the IBAN registration procedure.
Typical candidates to launch this would be EPIF or EMA, as it seems that countries are not necessarily registered through the authorities, but it’s sometimes industry organisation within those countries that take initiative. Maybe here industry initiatives active within Europe can push.
Fill in the forms at SWIFT. EU is already a reserved specific ISO- 3166 code, that was specifically reserved to be able to introduce the Euro, and has subsequently been used for the internet ccTLD without it being technically a ‘country’. The SWIFT form supports the fact that the code groups other countries and territories even (the reality for FR in SEPA).