When name and IBAN don’t match, bad things happen - IBAN payment

20 / 07 / 2021

For organisations offering any of their products or services through a subscription model, payments for those are likely carried out as a SEPA Direct Debit (SDD). This method is widespread and comes with many benefits. However, there’s one significant drawback: the set-up of the SEPA Mandate. Customers can - by accident or otherwise - use another IBAN when entering their personal details during the SEPA Mandate creation. In that case, another person pays subscription fees of somebody else. In the worst scenario the concerned person does not realize that it is being debted month after month. According to the National Bank of France, this was the cause of 61% of all fraudulent SDD amounts. All in all, there are four consequences for vendors when SDD fails, but I can provide you with a single implementation that can fix it all. iDEAL saw the light of day in 2005 and has grown out to be the most frequently used online payment method by Dutch consumers. It offers a smooth and safe way of paying online. Meanwhile, however, modernizing the scheme interface protocols was due. And even though iDEAL has dominated the Dutch online payment landscape for years, the competition has developed as well. That is why I believe updating iDEAL to today’s market needs and standards is the right way to go. The transformation from iDEAL to iDEAL 2.0 involves many changes. To summarise based on current available information, it seems that iDEAL 2.0 tends to become a wallet that will be structured around a central access point (CAP). This means it will not only initiate the payment, but consumers can also store their data and preferences on for instance what account to use or to which shipping address the goods can be sent. These changes sound especially interesting for smaller online merchants that are highly dependent on the iDEAL payment and do not have the possibility to facilitate a complete onboarding process.

3 min.

Banking Open banking Security & Fraud

img account payments digital banking - iban payment

1) Denied! Income does not come in …

One obvious drawback for vendors is the simple fact that turnover stops when payments fail. And frequent failures can cause major turnover uncertainty, which can cripple organisations that are trying to scale up.

2) Even when the money comes, it does not come cheap

Just think about the work an organisation must go through when chasing down rejected, refused, returned, or refund payments. It’s unhealthy. That’s why a lot of companies sell their receivables relatively cheap to third-party organisations, just to get rid of the hassle. Practices like these can cause unnecessary loss of income and hurt businesses.

3) Investments will have to wait

When uncertainty about income grows, analysing business data and forecasting future business gets much trickier. It’s hard for organisations to pull the trigger on large but necessary investments when the finance department doesn’t exactly know when and where the next injection of cash will take place.

4) Forget your business - what about your customers?

If payments fail, it’s not only the vendor who suffers. Imagine being a customer willing to pay for a streaming service. If paying for said service takes too much work – or can’t be done at all – there are plenty of competitors that can (and will!) offer a better customer experience. Furthermore, if your customer becomes a victim of fraud, not only the trust in your service, but also the probability that this client will come back to your service again is very low.

How to prevent this

By automating the process of matching name and bank details all these problems can be solved. Everything starts with a simple authorisation by the customer. Users who are willing to authorise their payment provider to match their identity and IBAN save themselves lots of time. The look up or typing in of the IBAN is no longer needed; the software will do it for them.

Everyone’s a winner

How does that work? Imagine a customer who wants to pay for the streaming service mentioned above. After entering its personal details on the checkout page, the customer will be redirected to its familiar and trusted banking environment to confirm and authenticate the retrieval of account data. This way, the customer gives consent either via the website or in the app and the name and IBAN will always match because they come directly from the bank. After completion, the customer will be redirected to the checkout page, where its banking details are displayed - without any chance of error - before confirming the mandate.

Reducing the chance of fraud or error in this simple way benefits both the organisation and the customer. Organisations will reduce their ‘R transactions’ (rejections, returns, refusals, refunded) and thus maintain a healthy cash flow. Customers will enjoy not having to look up their IBAN, not having to check twice on all their details and will just, you know, finally enjoy this streaming service we’ve been talking about.