TL;DR
IBAN discrimination occurs when businesses, employers, or financial institutions refuse to accept IBANs from other EU countries, despite SEPA regulations requiring acceptance across the European Economic Area (EEA).
This illegal practice often arises due to outdated systems, lack of awareness, or concerns about fraud prevention, and it creates unnecessary barriers for individuals and businesses.
The upcoming PSD3 directive aims to strengthen enforcement by introducing stricter penalties, standardized complaint procedures, and better regulatory oversight, helping ensure compliance and reduce IBAN discrimination.
IBAN discrimination occurs when a business, employer, or financial institution refuses to accept an International Bank Account Number (IBAN) from another European Economic Area (EEA) country.
Despite the EU’s efforts to create a unified financial system through the Single Euro Payments Area (SEPA), many companies still reject foreign IBANs, causing unnecessary obstacles for individuals and businesses. This illegal practice prevents people from receiving salaries, making payments, or using their preferred banking provider.
In this article, we will explore what IBAN discrimination is, its legal status, why it happens, and what individuals can do if they encounter it. We will also examine how upcoming regulations like PSD3 and innovations in Open Banking can help combat this issue.
What is IBAN Discrimination?
IBAN discrimination occurs when a business, employer, or financial institution refuses to accept an International Bank Account Number (IBAN) from a different European Economic Area (EEA) country.
This issue primarily affects people working or living in a country different from where their bank is based. For example, a French employer may refuse to pay a salary into a German IBAN, despite both countries being part of SEPA. Such practices contradict EU regulations and undermine financial integration.
IBAN discrimination can prevent people from using their preferred banking provider and create unnecessary barriers in an otherwise unified financial system. While the European Commission and regulatory bodies have taken steps to address this issue, it remains a widespread problem across many industries.
Is IBAN Discrimination Legal?
No, IBAN discrimination is illegal under EU law. The SEPA Regulation (EU 260/2012) clearly states that businesses must not refuse payments to or from a SEPA-compliant IBAN. Specifically, Article 9 of the regulation mandates that companies and public authorities must accept payments from any IBAN within the SEPA zone.
Despite these legal protections, many businesses still engage in IBAN discrimination, either due to outdated systems, internal policies, or lack of awareness. Some companies justify their refusal by citing fraud prevention concerns or technical limitations, but these reasons do not exempt them from compliance.
Regulators such as the European Banking Authority (EBA) and national financial authorities have taken steps to penalize violators. Affected individuals can file complaints with national banking regulators or consumer protection agencies to enforce their rights.
Why Does IBAN Discrimination Happen?
Despite being illegal, IBAN discrimination continues to occur for several reasons:
Lack of Awareness: Many businesses, especially smaller ones, are unaware of SEPA regulations and their obligation to accept all IBANs.
Outdated IT Systems: Some companies’ payment processing systems may only recognize domestic IBANs, leading to automatic rejections of foreign accounts.
Administrative Convenience: Organizations may prefer working with domestic banks to simplify accounting, payroll, or reconciliation processes.
Fraud Prevention Measures: Some businesses mistakenly assume that foreign IBANs pose a higher fraud risk and refuse them as a precaution.
Regulatory Complexity: While IBAN discrimination is illegal, enforcement varies across countries.
Geographical Bias: Companies may be reluctant to deal with foreign accounts due to unfamiliarity with different banking systems or concerns about additional fees.
Lack of Enforcement Mechanisms: While regulations exist, not all national authorities actively monitor or penalize IBAN discrimination.
What to Do If I Encounter IBAN Discrimination?
If you experience IBAN discrimination, you have several options to address the issue:
Educate the Business: Inform the company that IBAN discrimination is illegal under SEPA regulations. Sometimes, a simple email or phone call explaining the law can resolve the issue.
Provide Official Documentation: Refer the business to Article 9 of the SEPA Regulation (EU 260/2012) and share links to relevant European Commission guidelines.
Contact Your Bank: Some banks offer support to customers facing IBAN discrimination and may be able to intervene on your behalf.
Report the Violation: File a complaint with the relevant national banking authority or consumer protection agency. Many regulators have online portals for reporting IBAN discrimination.
Seek Assistance from Financial Ombudsman Services: In many EU countries, ombudsman services handle disputes between consumers and financial institutions.
Use Alternative Payment Methods: If the business refuses to cooperate, consider using other payment options, such as account-to-account payments.
PSD3 and IBAN Discrimination
The upcoming Payment Services Directive 3 (PSD3) aims to strengthen financial regulations within the European Union, including tackling IBAN discrimination more effectively than its predecessor, PSD2.
While IBAN discrimination is already illegal under SEPA regulations, enforcement has been inconsistent across member states. Many businesses continue to reject foreign IBANs due to weak penalties and a lack of regulatory oversight. PSD3 seeks to close these gaps by introducing stricter measures to ensure compliance.
Stricter Penalties
One of the key changes expected under PSD3 is the introduction of stronger penalties for businesses and financial institutions that engage in IBAN discrimination. Current regulations prohibit the practice, but many companies still refuse foreign IBANs without facing significant consequences. By increasing fines and enforcement efforts, PSD3 could deter non-compliance and ensure that businesses adhere to SEPA rules.
Standardized Customer Complaint Procedures
Another major improvement under PSD3 is the streamlining of consumer complaint procedures. At present, individuals who experience IBAN discrimination often face difficulties in reporting violations or receiving support from regulators. PSD3 could establish standardized procedures across EU member states, making it easier for consumers to file complaints and obtain resolutions. This would empower individuals to take action against non-compliant businesses, increasing pressure for change.
Improved Oversight
Regulatory oversight is also expected to improve under PSD3. National financial authorities will likely be given greater powers to monitor businesses and banks for IBAN discrimination and take action against offenders. Currently, enforcement varies widely between countries, allowing some companies to continue the practice unchecked. With PSD3, there could be more consistent supervision across the EU, reducing opportunities for businesses to exploit regulatory loopholes.
Technological Advancements
Finally, technological advancements and the modernization of payment systems will be a critical aspect of PSD3. Many businesses cite outdated IT systems as a reason for rejecting foreign IBANs, but PSD3 could push for better integration of SEPA-compliant payment processing. By mandating that businesses upgrade their systems, the directive may help eliminate technical barriers to IBAN acceptance.
Overall, PSD3 represents a significant step forward in the fight against IBAN discrimination. By increasing penalties, improving consumer protections, enhancing regulatory oversight, and encouraging technological advancements, this new directive could play a crucial role in ensuring that individuals and businesses can use their IBANs freely across the EU without unnecessary restrictions.
Conclusion
IBAN discrimination remains a significant obstacle to seamless banking within the EU, despite being illegal. Many businesses continue to reject foreign IBANs due to outdated systems, lack of awareness, or deliberate non-compliance.
However, legal frameworks such as SEPA regulations and the upcoming PSD3 directive aim to eliminate this practice by enforcing stricter penalties and improving consumer protections. Additionally, Open Banking offers innovative alternatives to traditional banking barriers, empowering users with more flexible payment solutions.
Sources:
European Commission - IBAN Discrimination
European Commission - IBAN Discrimination Update
Sources last checked on: 25 March 2025
Additional Resources:
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