This article is provided by ALT 21 Limited, trading as Alt21, a company authorised and regulated by the Financial Conduct Authority as a payment institution, with FRN 783837, and authorised for MIFID investment business including FX Options. ALT 21 Limited is not an electronic money institution, and it does not hold client money on an ongoing basis in the way a bank or an electronic money institution would. Any funds it receives are safeguarded in line with its payment institution permissions and are processed and passed on as part of completing your payment or currency transaction. This guide is intended for UK businesses considering how virtual IBANs and multi currency payment tools can support their international payments, reconciliation, and treasury activity, including businesses that may also be considering FX hedging products as part of that activity. All examples provided are illustrative only and are not a current or guaranteed rate. Please read the full disclaimer at the bottom of the page.
Getting paid is one thing. Knowing who paid you, and being able to put that money to work is another.
Virtual IBANs enable businesses to receive identifiable payments across currencies without opening a separate traditional bank account for each market or payment flow.
When a payment arrives, its virtual IBAN can tell you which customer or payment flow it belongs to, reducing the manual work involved in reconciliation.
From there, the same setup can support how you manage currency: holding what you’ll need, converting what you won’t and using existing balances for upcoming payments.
This article explores how virtual IBANs work, their benefits for businesses and the scenarios where they can simplify international payments and currency management.
What is a virtual IBAN?
A virtual IBAN, or vIBAN, is an International Bank Account Number used to receive and identify payments before routing them to an underlying payment account.
To the person making the payment, a virtual IBAN can look and function much like a standard IBAN. Behind the scenes, however, it doesn’t necessarily correspond to its own standalone bank account.
Instead, multiple virtual IBANs can be linked to an underlying account, sometimes called a master account. Each virtual IBAN acts as a unique identifier, allowing the provider to recognise who or what an incoming payment relates to and allocate it accordingly.
This structure allows businesses to separate and identify international payments across different currencies, customers, entities or payment flows.
For example, imagine your business receives payments from 100 customers.
Rather than asking all 100 to send money to the same account and relying on payment references to work out which customer has paid, you could assign different virtual IBANs to individual customers or payment flows.
When money arrives, the IBAN used to make the payment helps identify where it belongs.
Virtual IBANs can also give businesses receiving details for currencies or payment schemes they need without requiring them to open and administer multiple traditional bank accounts.
One thing to note is that there isn’t currently one universally applied definition of a virtual IBAN. Providers can structure and issue virtual IBANs in different ways, and terms such as local IBAN, local receiving details and virtual account details aren’t necessarily interchangeable.
The European Banking Authority (EBA)1 highlighted this lack of a common definition in its 2024 report on virtual IBANs. What the structures it examined generally had in common was that the virtual IBAN had the format and functionality of a standard IBAN from a third party’s perspective while being linked to a separate underlying payment account.
So when comparing providers, it’s worth looking beyond the terminology and understanding what account details you’re actually receiving, where your money is held and how the provider allocates payments.
Understanding safeguardingWhen payments are made through a regulated payment institution such as Alt21 Limited, relevant client funds are subject to safeguarding requirements rather than protection under the Financial Services Compensation Scheme (FSCS). Payment institutions aren’t banks, so relevant client funds don’t benefit from FSCS deposit protection in the same way as eligible deposits held with a UK bank, building society or credit union. Under the UK Payment Services Regulations 2017, authorised payment institutions must safeguard relevant client funds. Safeguarding requirements are designed to keep client funds separate from the payment institution’s own money. When comparing providers, check how client funds are safeguarded, which institutions are involved in the payment process and the regulatory permissions under which the service operates. For full details of how Alt21 Limited safeguards client funds, please refer to the Payment Terms and Conditions on the Alt21 website |
What’s the difference between a virtual IBAN and a virtual account?
Virtual IBANs and virtual accounts play different roles in how payments are received and organised.
- A virtual IBAN is primarily an identifier used to receive and route a payment. It tells the provider where an incoming payment should be allocated.
- A virtual account is a broader concept. It generally refers to an account or sub-account created within a provider’s infrastructure to help a business organise, track or reconcile money without creating a separate traditional bank account for every customer, currency or payment flow.
Think of the difference this way:
If several doors lead into the same building, the virtual IBAN can act as the number on each door. It tells you which entrance the payment came through.
The virtual account is what helps organise where that payment belongs once it’s inside.
In practice, providers structure their accounts differently, so you may see these terms used in slightly different ways.
Rather than choosing based on the product name alone, look at what the setup actually allows your business to do:
- Can you receive the currencies you need?
- Can you identify incoming payments automatically?
- Can you make onward payments?
- And can your finance team clearly see where money came from and where it needs to go?
Those capabilities are usually more useful than the label attached to the account.
How do virtual IBANs work?
The exact infrastructure varies between providers, but the result is a relatively simple experience at either end of the transaction.
1. Your business receives a virtual IBAN
Once your account is approved, your provider can issue receiving details for the currencies or payment flows it supports.
Depending on the provider, you might receive one IBAN capable of handling several currencies or different receiving details for particular currencies.
2. You share the details with your customer
You add the relevant receiving details to your invoice or give them directly to the person or business paying you.
From their perspective, the process can look much like making a payment to other IBAN-based account details.
3. Your customer makes the payment
The payment is sent using the appropriate payment infrastructure.
For example, eligible euro payments can be made through the Single Euro Payments Area (SEPA), which provides common standards for euro payments across participating European countries.
The available payment route will depend on the currency, account details and provider.
4. The payment reaches the underlying account
The virtual IBAN itself doesn’t independently hold the money.
Instead, it helps route or identify the payment against an underlying account used by the provider.
5. The virtual IBAN identifies the payment
Because the virtual IBAN is unique to a particular customer, account or payment flow, the provider can use it to determine where the incoming money belongs.
This is where virtual IBANs can become particularly useful for reconciliation.
Instead of relying solely on a customer entering the right invoice number or payment reference, the receiving details themselves can help identify the payment.
6. The funds become available to your business
Once received and allocated, the balance can be made available within your provider’s platform.
Depending on the services available, you might convert it into another currency or use it for an onward scheduled payment.
The result is a relatively simple experience at either end of the transaction, with the routing and allocation happening behind the scenes.
6 benefits of virtual IBANs for businesses
Virtual IBANs can remove some of the admin that comes with receiving money across currencies, from identifying incoming payments to reconciling them against the right customer or invoice.
Let’s take a look at six benefits of virtual IBANs for businesses:
1. Receive payments using appropriate account details
If you regularly receive money from customers in another market, giving them suitable receiving details can make the payment process more familiar.
Rather than treating every cross-border transaction in the same way, your business can use receiving details and payment schemes appropriate to the currencies and markets supported by your provider.
That can reduce some of the friction associated with collecting money internationally without requiring your business to establish a traditional bank account in every country where it has customers.
2. Make reconciliation easier
One of the more significant benefits of virtual IBANs appears after the customer clicks send.
Imagine 20 payments arrive in the same account on Monday morning.
If every customer used the same receiving details, your finance team may need to work through payment references, amounts and outstanding invoices to establish what belongs where.
Unique virtual IBANs can provide another identifier.
A payment arriving through a particular vIBAN can automatically be associated with the relevant customer, entity or payment flow.
That becomes increasingly useful as transaction volumes grow.
3. Reduce manual payment matching
Better reconciliation also means less manual work.
Payment references can be missing, mistyped or inconsistent. A customer might use an invoice number one month, and their company name the next.
If the receiving details themselves identify the payer or payment flow, your finance team has less information to match manually.
For businesses processing large numbers of incoming payments, this can remove a repetitive administrative task and make it easier to see which invoices remain outstanding.
4. Separate payment flows without opening multiple bank accounts
There are plenty of reasons you might want to distinguish one stream of incoming money from another.
You might want separate details for different customers, business entities, currencies or parts of your operation.
Traditionally, creating that separation could mean opening and maintaining additional bank accounts.
Virtual IBANs can create more granular payment flows without requiring a standalone traditional bank account behind every individual identifier.
That gives finance teams a way to organise incoming money while keeping the underlying account structure more manageable.
You might be interested in our article on financial fragmentation that covers this in more detail.
5. Manage multiple currencies in one place
Virtual IBANs are particularly useful when they sit within a broader multi-currency setup.
If your business receives GBP, EUR, and other currencies, for example, you may be able to receive those payments and track the resulting activity from the same platform, rather than managing disconnected accounts and providers.
Alt21 is a payment institution rather than an electronic money institution. Some providers in this space are electronic money institutions, which may allow you to hold your money within an e-money wallet. Alt21 does not hold client money in this way. Instead, as a payments institution Alt21 helps you convert currency you will not need and uses available balances to facilitate scheduled payments.
6. Manage currency you also need to spend
Suppose your business receives €100,000 from European customers each month but also has €60,000 of regular euro-denominated costs.
Automatically converting every euro, you receive into pounds and then buying euros again when those costs are due could create unnecessary transactions and FX costs.
Where your account allows you to hold the currency, i.e. if your provider is an e-money institution or a bank, then you may instead be able to use some of your euro receipts to meet euro expenses
This is known as natural hedging: offsetting receipts and payments in the same currency to reduce the amount that needs to be converted.
It won’t remove every currency exposure, and the timing and value of incoming and outgoing payments rarely match perfectly. But understanding the currencies you already hold can help you make more deliberate decisions about what you actually need to exchange or hedge.
What does a virtual IBAN look like?
To the person sending money, a virtual IBAN looks like an ordinary IBAN.
An IBAN is an internationally standardised account identifier made up of letters and numbers. Its precise length and structure depend on the country associated with it.
An illustrative UK IBAN, for example, might look like:
GB29 NWBK 6016 1331 9268 19
The first two characters identify the country:
GB = United Kingdom
The next two are check digits:
29 = check digits used to help validate the IBAN
The remaining characters contain the domestic bank and account identifiers required by that country’s IBAN structure.
A virtual IBAN follows the relevant IBAN format, so the difference between a virtual and standard IBAN may not be apparent to the sender.
A standard IBAN is associated with its underlying payment account. A virtual IBAN may instead be linked to another master or underlying account and used to identify and allocate incoming payments. The country code also shouldn’t automatically be interpreted as proof that your business has opened a bank account in that country.
If this is important to your operations, check with the provider exactly what its receiving details represent and which payment schemes they support.
5 scenarios where a business might use a virtual IBAN
Whether you need virtual IBANs depends on how money moves through your business.
Here are five situations where they can be particularly useful:
1. You regularly receive payments from overseas customers
Say you’re a UK business selling to customers across Europe and invoice them in euros.
Rather than asking customers to navigate payment instructions that may be less familiar to them, you can provide appropriate EUR receiving details supported by your provider.
Your customer sends euros to those details, and the funds are allocated to your EUR balance.
You can then decide whether to hold the euros, convert them, or use them for another payment.
2. You process a high volume of incoming payments
The more customers paying into the same account, the harder reconciliation can become.
This is particularly relevant for businesses that receive dozens, hundreds or thousands of payments and need to associate each one with a particular customer or transaction.
Assigning unique virtual IBANs to different payers or payment flows can make that identification easier.
Instead of asking “Who sent us £4,872.63?”, the receiving details can already tell your systems where to look.
3. You want to separate customers, entities or business units
Not every incoming payment belongs in the same operational bucket.
You may want to track revenue from particular customers, distinguish between entities or separate payment flows associated with different parts of the business.
Corporate named virtual IBANs and other virtual account structures may be used by some providers to create that separation, although the exact naming and account capabilities differ.
If this is what your business needs, check whether the virtual IBAN will display your business or customer name, who legally holds the underlying account and how that information appears to the sender.
4. You receive revenue in several currencies
International growth can leave finance teams managing a growing collection of currencies and accounts.
Perhaps your customers pay in euros and pounds while your suppliers require dollars and euros.
Virtual IBANs combined with multi-currency balances can help bring more of those flows together.
You can see what has arrived, what currencies you’re already holding and what you still need before deciding whether to convert or make an onward payment.
5. You receive and spend the same currency
If money regularly comes into and leaves your business in the same currency with a provider who is an e-money institution or a bank, then holding some of those receipts can help you avoid unnecessary conversions.
You might receive €100,000 but need €60,000 for suppliers later that month.
Rather than thinking about the €100,000 receipt and €60,000 payment as completely separate FX events, you can look at your net requirement.
In this example, your underlying exposure may be closer to €40,000, subject to the timing and certainty of those cash flows.
That gives your finance team a clearer starting point for deciding what money needs to be converted, what can remain in currency and whether any remaining future exposure needs further consideration.
Manage international payments with Alt21
Alt21 brings international payments and currency management into one platform. You can receive payments using supported local account details, convert currencies and make international payments, with pricing that shows our FX margin and the full cost before you confirm a trade.
For future currency requirements, Alt21’s MIFID authorised business also offers Forward Contracts, FX Options, and other hedging tools, allowing your finance team to manage FX exposure alongside your payment activity. These are complex products that carry their own risks, may result in outcomes that are less favourable than expected, and may not be suitable for every business, so you should ensure you understand and are comfortable with these risks before entering into any such product.
Whether you’re paying suppliers overseas or planning for future currency needs, Alt21 gives you the tools to manage each stage in one place.
Ready to bring your international payments and currency management into one place? Open an Alt21 account today.
Frequently asked questions about virtual IBANs
Are virtual IBANs the same as bank accounts?
No. A virtual IBAN is an account identifier used to receive and allocate payments. Depending on the structure used by the provider, it may route money to an underlying or master payment account rather than representing a standalone bank account in its own right.
This distinction can also affect how funds are protected. Payment institutions use safeguarding arrangements for relevant customer funds rather than the FSCS protection applicable to eligible bank deposits.
Are virtual IBANs free?
Some providers may advertise free virtual IBANs or include receiving details as part of an account without charging a separate setup fee.
That doesn’t necessarily mean using the account is completely free.
Providers can make money through account subscriptions, payment fees, FX spreads, conversion charges or other services. Before choosing between the best virtual IBANs for your business, look at the total cost of receiving, holding, converting and sending money rather than one headline FX fee.
Can you get virtual IBANs online?
Yes. Many payment and financial services providers allow eligible businesses to apply for accounts and access virtual IBANs online.
You’ll still normally need to complete the provider’s onboarding and verification process before account details are issued. Availability can depend on factors including where your business is registered, its activities and the currencies or services required.
Do you need a virtual IBAN app?
Not necessarily. A virtual IBAN is an account identifier rather than an app itself. Providers may give you access to your account through a web platform, mobile app or both.
If you’re comparing a virtual IBAN app or platform, look beyond how you access it. Consider what your finance team can actually do once logged in, including viewing balances, reconciling incoming payments, converting currencies, making payments and controlling user permissions.
Which companies offer virtual IBANs?
Virtual IBANs can be offered through different types of regulated financial institutions and payment providers, depending on the jurisdiction and underlying structure.
The arrangements can differ considerably between providers, so comparing companies that offer virtual IBANs based on the IBAN alone won’t tell you everything you need to know.
Look at which currencies and payment schemes are supported, how funds are held and safeguarded, whether the account can hold balances, what reconciliation tools are available, how much payments and conversions cost and what regulatory permissions the provider holds.
Which companies issue virtual IBANs to banks and other financial businesses?
Virtual IBAN infrastructure isn’t only used directly by businesses.
Banks, payment service providers, fintechs and other financial businesses can also use infrastructure providers to issue virtual IBANs or offer virtual account capabilities to their own customers.
This is a different use case from a business simply needing account details to receive international payments. If you’re looking for infrastructure rather than a business account, you’ll need to consider factors such as API capabilities, regulatory responsibilities, payment scheme access and how virtual IBANs can be embedded into your own customer experience.
What does the EBA report on virtual IBANs say?
The European Banking Authority published its report on virtual IBANs in May 20242 after examining their issuance and use across the EU.
One of its central findings was that there was no commonly applicable definition of a virtual IBAN. Providers were issuing and using them in different ways, while national authorities also differed in how they interpreted and applied relevant regulation.
The EBA identified common characteristics, including that virtual IBANs can have the same format and functionality as standard IBANs from a third party’s perspective while being linked to a separate underlying payment account.
It also identified regulatory and operational challenges relating to areas including anti-money laundering controls, consumer and depositor protection, authorisation and regulatory arbitrage.
For businesses, this reinforces why it’s worth understanding the structure behind a virtual IBAN rather than assuming every provider offers the same thing.
Can I receive SEPA payments using a virtual IBAN?
Potentially, yes. If your provider issues an eligible EUR IBAN that supports SEPA payments, it can be used to receive euro payments like TRY to EUR through the relevant SEPA scheme.
Support varies between providers, however, so check which payment schemes and transaction types are available for the account details you’re given.
Are virtual IBANs safe?
The safety and protections attached to a virtual IBAN depend on the provider, its regulatory status and the underlying account structure.
In the UK, authorised payment institutions are subject to requirements for safeguarding relevant customer funds. Safeguarding is different from FSCS deposit protection, so it’s important to understand which protection applies before placing money with a provider.
You should also consider the provider’s security controls, regulatory permissions and approach to financial crime when evaluating an account.
ALT21 Limited is authorised and regulated by the Financial Conduct Authority (FRN: 783837) and is a company registered in England and Wales (number 10723112). The registered address is 45 Eagle Street, London WC1R 4FS, United Kingdom. This article has been produced by ALT21 Limited for information purposes only. It does not constitute financial advice or an offer to sell or the solicitation of an offer to buy any products referenced. Hedging products are not suitable for every business. Payment services are provided under Alt21’s payment institution permissions while Forward Contracts and FX Options are provided under its MIFID investment business permissions. Before entering into any FX product, you should consider whether it is appropriate for your needs and circumstances. ALT21 Limited assumes no liability for errors, inaccuracies or omissions. Eligibility criteria and terms and conditions apply to all products and services offered by ALT21 Limited. Not all applications will be accepted.
1. https://www.eba.europa.eu/publications-and-media/press-releases/eba-finds-divergences-issuance-and-regulation-virtual-ibans-across-eu-identifies-issues-and-provides
2. https://www.eba.europa.eu/publications-and-media/press-releases/eba-finds-divergences-issuance-and-regulation-virtual-ibans-across-eu-identifies-issues-and-provides
