IBAN-Name Check: the New Must in the Fight Against Fraud

The fight against fraud is one of the most pressing issues in Europe, and checking the IBAN and the name of the beneficiary party will soon be a must. This verification was already included in the EU Commission’s proposal for a regulation on instant payments last fall. It is also at the heart of the proposed regulation on payment services (PSR) published in June 2023 as part of the PSD2 legislative package. With this proposal, the Commission aims to extend the verification to all EU credit transfers in all EU currencies.

In detail, the IBAN-name check should work as follows: The paying party's payment service provider (PSP) must offer its customers a service to verify that the IBAN matches the name of the beneficiary party as provided by the paying party. The PSP can request this verification free of charge from the beneficiary party’s PSP. If the IBAN and the name do not match, the PSP must notify the paying party of the discrepancy and indicate the level of the discrepancy. The paying party can then decide whether or not they want to authorize the payment; the paying party also has the right to completely opt out of this service.

The aim of the IBAN-name check is to create an additional level of trust and security in payment transactions. But how successful will such a mandatory check be in fighting fraud? The Euro Banking Association (EBA) tried to answer this question in a recent study prepared in cooperation with the Austrian and German central banks and Strategy&.

Together with members of its anti-fraud expert group, the EBA concluded that such a check could address some types of authorized push payment fraud, but it is far from being a silver bullet. The check would be most effective in cases where a fraudster tricks a victim into authorizing a payment to a beneficiary party that is known to the payer, but where the IBAN belongs to an account under the fraudster’s control. However, there are quite a few fraud types where the victim is likely to initiate a payment despite a mismatch between the IBAN and the name. Victims are especially prone to proceed with the transaction if the fraudster is able to continuously pressure or manipulate them, possibly even during the payment process.

The above-mentioned study further takes stock of the IBAN-name check solutions available or under development in the European payments market and highlights their different approaches. Although there is currently no uniform approach, the ongoing legislative process – which could lead to the publication of the Instant Payments Regulation before the end of 2023 and the Payment Services Regulation by mid-2024 – could act as an accelerator. At a pan-European level, EBA CLEARING is already working on an IBAN-name check solution for SEPA credit transfers and SEPA instant credit transfers, which should be available by the end of this year.

Annick Moes
Head of Industry Issues and Cooperation Initiatives, Euro Banking Association (EBA)