What is a Virtual IBAN Account - How does it work?

A virtual IBAN is an IBAN (International Bank Account Number) reference issued by a bank to allow incoming payments to be rerouted to a different, physical bank account. Virtual IBAN accounts can be used to send and receive payments worldwide, allowing businesses to extend their value chain to provide settlement services to its global customers. From the customer’s point of view, a virtual IBAN works in exactly the same way as a regular IBAN account – once they make a payment, their funds will end up in the physical bank account linked to the virtual IBAN.

A virtual IBAN account is a phantom account number on the international numbering standard but which does not reference an actual, physical bank account. Instead, the owner of virtual IBAN can set incoming payments to route to some physical bank account they do own which has its own IBAN.

The point and the main advantage is that a company can establish just one actual bank account and then obtain multiple virtual IBAN accounts which will all route to that one bank account. This allows them to mimic the effects of having multiple accounts, and if necessary in multiple countries, without the expense of all the banking fees associated with establishing and maintaining them. And because the account owner of the virtual IBAN is the same as the account owner of the actual account, settlement of payments routing to the actual account generally process faster.

It can also simplify currency management issues when one expects to regularly receive payments in multiple different currencies. And of course, the account owner gets separate statements for each virtual IBAN, which can greatly simplify reconciling their statements, for example by using a different virtual IBAN for each major international customer firm.

As to the cons, there really aren't any. Obviously, their benefits are not necessarily of use to every business. For example, a business that only has one international B2B customer can just use the IBAN directly associated with their actual account. But for those who do have a use for them, there are no real downsides. They are cheaper and more flexible than having multiple physical bank accounts or trying to manage multiple B2B customers paying in multiple currencies through a single account structure.