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IBAN discrimination continues to wreak havoc for some EU consumers, yet interventions in France and Ireland show that regulators are beginning to act to bring an end to the almost decade-long problem.
IBAN discrimination, whereby a consumer is refused payment with a SEPA IBAN, has long been an issue for the EU.
This is despite SEPA regulations, which have been in place for eight years, dictating that it is not allowed.
"IBAN discrimination is still a problem,” acknowledged Andrei Cazacu, EU policy lead at TrueLayer. “As a pan-European open banking provider, we see a combination of IBAN discrimination and PSD2 non-compliance that leads to more friction for cross-border payments within the SEPA area than for domestic payments. These are problems that should have gone away years ago."
Lili Metodieva, managing director at Monneo, agreed, pointing out: "IBAN discrimination can happen due to Brexit, as EU banks don't want to execute SEPA transactions to the UK, although UK is part of SEPA, which is completely wrong and unacceptable. It creates an issue for both companies and consumers."
Yet, she suggested that the EU-UK issue is an area that is increasingly improving.
"The first year after Brexit was difficult as you never knew if a UK IBAN was going to get declined,” she said. “This year, there have not been as many cases, so this could be the first of the IBAN discrimination issues to be solved."
However, the problem is not just an issue for transactions between the UK and the EU’s single market. Rather, it goes deeper.
"EU countries are discriminating on the basis of where a transaction comes from. Let's say you want to buy a property in one EU country but have an IBAN from another, or that you work for a company in a different member state,” she said. “On many occasions, a local IBAN for the member state is required to make the transfer for the property or get your salary. We're talking about a digital single market here and this just isn't happening."
Some sources have previously suggested to VIXIO that this can even be an issue of East v. West. Western EU banks, in this instance, may simply opt to not engage with bank accounts from countries that they consider high risk, such as Romania.
There is also discrimination between banks and fintechs. “Transfers to EMIs, who are part of SEPA and issue IBAN accounts, are being often denied by banks, even though they are regulated and follow the rules,” warned Metodieva.
“The banks say they would not want to send money due to risk, but in reality, it could be just a lack of understanding of the modern fintech business. As long as an EMI is regulated there should not be any issues with transferring money," she continued.
"But again, this ruins the concept of a single digital market. It feels like we are still stuck somewhere, and its creating problems and adding costs."
Financial services and the public sector are some of the worst culprits for IBAN discrimination, said Magali Van Bulck, senior policy and press manager at Wise.
“This is disappointing, particularly for the latter, as it sets the laws, so why doesn't it respect them?”
This problem has even permeated into the heart of the EU policy-making machine, with the European Parliament itself being found to have discriminated against employees who tried to get paid with a non-Belgian bank account.
“This type of discrimination is happening in a lot of places,” said Van Bulck. “People are not able to get tax rebates or unemployment benefits and this is problematic in times of inflation, and was a major concern during the pandemic."
Monneo, Wise and TrueLayer are all partners in the market-led awareness campaign, Accept My IBAN. Set up last year, this has helped shed light on the problem for regulators that may have been oblivious to it before.
The coalition is largely made up of fintech companies, which are based throughout Europe.
"Fundamentally, it is the consumers who are missing out because of this, but there are a number of reasons why IBAN discrimination is hitting fintechs in particular,” explained Cazacu.
As with PSD2 problems, this is mostly to do with old infrastructure that has been rolled over by some of the banks. “This has been rolled over and now needs to be updated, but this means investment, and that is not a priority."
Unaware of the problem
As for regulators, they may not have known how widespread the phenomenon was and still is.
“The European Commission wasn't aware that IBAN discrimination was still happening on a wide scale in the EU,” pointed out Van Bulck.
This was because it did not have enough proof to come to that conclusion and “why we launched the Accept My IBAN platform".
“Now, consumers can report IBAN discrimination whenever it happens, and we have been passing on their feedback to the commission as well as national authorities."
For Cazacu, creating visibility of the problem has been one of the big steps with the Accept My IBAN campaign.
“We have presented to the French regulator several hundreds of consumer complaints and this has been effective,” he said. “Complaints that had been made directly to them were very few, only the tip of the iceberg."
According to Van Bulck, the campaign group has documented more than 2,000 complaints, of which nearly 40 percent were from France. Yet by comparison, there were just 59 complaints made directly to the Banque de France.
In December last year, France’s General Directorate for Competition, Consumption and Fraud Control (DGCCRF) and the National Committee for Cashless Payments (CNPS) declared they will start fining anyone who discriminates against a non-French bank account.
It is clearly very difficult for consumers to know to whom they can complain, Van Bulck said. “In member states like Spain, it is a bit of a maze. In many cases, they need to complain to one of the 17 autonomous regions for example.”
“Imagine not being Spanish and trying to find and get hold of the right department. It’s a complete nightmare."
Engagement depends from regulator to regulator, said Cazacu.
For example, the Central Bank of Ireland recently released a guidance note asking for all businesses to comply and not discriminate against non-Irish IBANs.
“Of course, they're also exposed by retail banks leaving the country soon and so know it is an issue that will only grow in the next few years,” he said.
For Metodieva, still, more could be done.
"Regulators are not doing enough as it still exists,” she said. “They are slow but I'm not sure if they even realise the scale of the issue, and they may not realise how it affects consumers and businesses."
Its existence may even be holding back open banking payments success in Europe, particularly between different SEPA countries, as the process can include extra steps compared with a domestic payment, such as having to type in the beneficiary's physical address.
“These unnecessary steps frustrate consumers who often simply abandon the payment, and don’t take the time to submit a complaint, in fact, they likely aren't even aware they are able to,” said Cazacu. “That is why we are trying to raise awareness of how it manifests in open banking in particular."
