Virtual IBANs: Removing Friction in Cross-Border Payments

As a high-risk business owner, it can often feel like you’re swimming against the tide when it comes to getting approved for a high-risk merchant account. You know that you have a great product or service, but it can be difficult to find a payment processor willing to take on the risk associated with your business.

One of the biggest hurdles you’ll face is finding a way to accept and receive international payments. If your business relies on cross-border sales, you know that accepting payments from anywhere in the world is crucial.

But what if there was a way to get around this problem?

Introducing virtual IBANsIn this guide, we’re going to take a look at what they are, how they work, and how you can use them to remove friction from your cross-border payments.

Let’s get started.

What is a virtual IBAN?

A virtual IBAN is a payment method that allows you to receive cross-border payments without the need for a traditional bank account. Instead of using a physical bank account, you’ll be able to generate a unique IBAN (International Bank Account Number) that can be used to receive payments from anywhere in the world.

Virtual IBANs offer a number of advantages for high-risk businesses, including:

  • Reduced fraud risk: Virtual IBANs can be used to receive payments from anywhere in the world, which means that you’re not as susceptible to fraud.
  • Lower costs: There are no monthly fees or minimum balance requirements associated with virtual IBANs.
  • Faster payments: Virtual IBANs allow you to receive payments faster than traditional bank accounts.
  • Greater flexibility: You can generate as many virtual IBANs as you need, which gives you the flexibility to receive payments from multiple countries.

Let’s say you own an online gambling company and want to offer your customers the ability to pay in Euros. Traditionally, you would need to open a bank account in Europe in order to receive payments. But with a virtual IBAN, you can generate a unique IBAN that can be used to receive payments from anywhere in the world. This means that you can avoid the hassle and expense of opening a bank account in Europe and receive payments faster than if you were using a traditional bank account.

How virtual IBANs work

Virtual IBANs work by routing payments through the SWIFT network. SWIFT is a global network connecting banks and financial institutions worldwide. When you receive a payment from a customer, the funds are first sent to a virtual account that is linked to your virtual IBAN. From there, the funds are transferred to your real bank account via the SWIFT network. The whole process is automated, which means that you don’t have to worry about manually transferring funds from your virtual account to your real bank account.

The Friction: Explained

According to SWIFT, 2%-5% of payments are subject to an inquiry or investigation, leading to a delay before payment can be completed.

The main reason for this is that traditional cross-border payments can be slow and inefficient. When you send a payment from one country to another, the funds have to be converted into the local currency, which can take days. And if there are any errors or discrepancies, the payment can be delayed even further.

Some additional issues with traditional cross-border payments include:

  • High fees: Banks typically charge high fees for cross-border payments, which can eat into your profits.
  • Long payment terms: Payment terms can be as long as 30 days, which can put a strain on your cash flow.
  • Complex documentation: The paperwork and documentation required for cross-border payments can be complex and time-consuming.

The Solution:

This is where virtual IBANs can help. By routing payments through the SWIFT network, virtual IBANs can help to speed up the payment process and reduce the risk of delays and errors.

In addition, virtual IBANs offer greater transparency and visibility into the payment process. With a traditional bank account, you might be unable to track a payment’s status or see where it’s being held up. But with a virtual IBAN, you can see exactly where the payment is at every step of the way. This transparency can help reduce the frustration of waiting for a cross-border payment to arrive.

When it comes to rules and regulations, cross-border payments can be a minefield. Different countries have different laws and regulations, which can make it difficult to comply with all of them. This is another area where virtual IBANs can help. Because virtual IBANs are not tied to any one country, they offer greater flexibility when it comes to compliance. With a virtual IBAN, you can choose the jurisdiction that best suits your needs. For example, you might choose a jurisdiction with more favourable tax laws or one that offers greater protection from fraud.

Virtual IBANs can also help to reduce the risk of incorrect data fields, as the fields are generated automatically. Let’s say you own a forex brokerage that allows your clients to trade in multiple currencies. With a traditional bank account, you must manually enter the client’s currency and amount into the relevant fields. But with a virtual IBAN, all this information is generated automatically, reducing the risk of errors.

Final Thoughts

As more businesses enter the global market, the need for virtual IBANs will continue to grow.

Gone are the days when outdated banking infrastructure could slow down or even stop global commerce. The modern global financial ecosystem is complex and ever-changing. 

As businesses utilise virtual IBANs to make and receive payments, they are future-proofing their cross-border payment options and gaining a competitive advantage.

At Capitalixe, we work with leading banks and financial institutions to provide our clients with the best possible rates and terms for their cross-border payments. From virtual IBANs to blockchain-based solutions, we are constantly innovating to make cross-border payments faster, easier and more efficient.

If you’re looking for a better way to make cross-border payments, we can help. 

Get in touch today to find out more about our services.