Marketplaces: What is a virtual IBAN for?

24 November 2020


On financial marketplaces (crowdfunding, crowdequity, crowdlending, etc.), it is important to know who contributed how much to a given project. The same approach applies to B2B marketplace platforms because they involve sending large amounts and making multiple transfers. In both cases, a virtual IBAN offers many benefits. 

Without one, contributors, lenders and payers must provide a certain amount of information when they make a transfer. If any details are entered incorrectly or forgotten, this mode of operation means that processing and bank reconciliation will not be correctly performed. As a result, transfers will be delayed and payment flows disrupted. A virtual IBAN is a simple way to avoid such pitfalls.


Crowdfunding: A guide to understanding payment flows

Let’s take the example of a crowdfunding platform with a money pot system.

On a crowdfunding platform, the payment flow pattern usually looks like this:

  1. Creation of a payment account for the project and for each contributor
  2. Processing of funds received from the contributor to the contributor’s payment account
  3. P2P transfer of funds from the contributor’s payment account to the payment account linked to the supported project
  4. Transfer of funds from the project payment account to the project bank account

Payment flow - Donation

During the Money-In stage, when a contributor makes a transfer to their own payment account, they must enter a certain number of additional details for the bank reconciliation to take place correctly and for the transfer to be made. As such, they must specify, in order: the platform name followed by a dash and the external ID of their payment account. If any details are entered incorrectly, the transfer cannot be completed and the PSP will need to perform a bank reconciliation manually, which increases the time to process and complete the transfer.

In such cases, given that the transfer is made using an IBAN shared by several users, it is crucial to know who paid how much to whom. To prevent any problems, it is strongly recommended that crowdfunding platforms use a virtual IBAN.


Virtual IBAN: How does it work?

Rather than parties sharing the same IBAN, a virtual IBAN involves assigning an IBAN to each payment account belonging to a contributor, lender or investor on a crowdfunding platform or payer on a marketplace as a way to speed up bank reconciliation and transfers. This means that as long as the name of the transfer issuer matches the name of the payment account, the transfer will be credited automatically. The platform users will no longer need to find their external ID and enter it, which will save them a considerable amount of time.

With a shared IBAN, funds are first sent to the PSP’s IBAN and only then transferred to a dedicated payment account. With a virtual IBAN, however, money is sent directly to the virtual IBAN associated with a payment account. Since the IBAN is linked to a single payment account, there is no scope for error. Transfers are automated, with a 100% success rate guaranteed! This is a key factor for, among others, crowdfunding platforms that generate multiple investments (i.e. transfers) and that need funds to be transferred quickly. 


Virtual IBAN: What are the benefits?

Setting up a virtual IBAN is useful for:

  • Contributors, lenders, investors and payers, who will be able to transfer money more easily and will not need to look for and enter their ID number, which carries a risk of input errors
  • The platform administrators, who will no longer waste time on financial reconciliation transactions and contacting the PSP’s customer service team in case of an unmatching transfer
  • The beneficiaries, who will receive their transfers quicker


Ultimately, a virtual IBAN also offers a better conversion rate because it cuts out a step from the payment process (looking for and entering the external ID). Do you have any questions about this feature? Would you like to offer it on your crowdfunding platform? Talk to us about your project! et lemonway - PSP migration