Checking the beneficiary when making transfers

When making a transfer through online banking, users occasionally enter an incorrect account number for the beneficiary, causing the payment to reach someone other than the intended recipient. Under European rules, banks throughout Europe process a payment instruction solely on the basis of the beneficiary’s account number, not the name that the payer must also enter. The account number is the unique identifier that allows all banks involved to complete the payment instruction by the end of the next business day at the latest, throughout Europe. The beneficiary’s name is entered only for administrative purposes, for example to help find a payment later in online banking.

At the end of 2015, Dutch banks agreed with the Dutch Consumers’ Association to investigate during 2016 how often incorrect transfers occur and what causes them. Based on the findings, banks can determine whether additional measures are needed and what those measures might be.

No name check in online banking

In the Netherlands, online banking has never checked the beneficiary’s name, except for transfers within the former Postbank between two Postbank account holders. This was necessary because Postbank used unusual, short account numbers that did not allow typing errors to be detected. All other banks used longer account numbers with a built-in validation mechanism that excluded almost all typing errors.

Typing errors largely excluded with IBANs

When SEPA, the Single Euro Payments Area, was introduced in 2014, all European account numbers were replaced with IBANs. Every IBAN contains two check digits that almost entirely eliminate typing errors in the account number. As a result, transfers between two IBANs from the former Postbank are no longer checked against the beneficiary’s name either.

No access to other banks’ account records

A bank has no access to the account records of other banks. This was already impossible between Dutch banks, let alone between banks elsewhere in Europe. A bank therefore cannot check whether the payer entered the correct beneficiary name for a payment instruction to another bank.

Undue Payment Procedure

Someone who accidentally transfers money to the wrong beneficiary can use the Undue Payment Procedure (in Dutch). The payer’s bank then asks the unintended beneficiary in writing to return the money. If the beneficiary has not returned it within 21 days, the payer’s bank provides the beneficiary’s name and address. The payer can then try to recover the money directly, through civil proceedings if necessary.

Around 80% of all incorrect transfers are returned to the payer by the unintended beneficiary in this way.

Incorrect transfer caused by fraud or a scam

The Undue Payment Procedure cannot be used when someone transfers money to the wrong account as a result of fraud or a scam. It would serve no purpose because a malicious beneficiary will never return the money voluntarily. Victims of fraud or scams should report the incident to their own bank as quickly as possible, file a police report and await any investigation and prosecution of the offender by the judicial authorities.

Preventing fraud and scams

An incorrect transfer caused by fraud or a scam can be prevented by carefully checking the beneficiary’s name and account number first. This is especially important for account numbers that have not been used for more than a year or have never been used before. A private beneficiary can be asked to transfer one euro cent to the payer’s account first. The payer can then check the real name associated with the beneficiary’s account on their account statement. This works for every bank account in the EU.

To check whether a company or organisation is acting in good faith, consumers can consult ConsuWijzer from the Netherlands Authority for Consumers and Markets (in Dutch) or the Fraud Help Desk (in Dutch) . Marktplaats also provides useful advice about buying and paying securely online (in Dutch) .

European developments to prevent incorrect transfers

Incorrect transfers occur throughout the world. Europe is now investigating how they can be reduced easily and efficiently. One option under consideration is the use of aliases. An alias is an alternative identifier for a payment account, such as a carefully verified telephone number or email address, which could be used for a transfer instead of an IBAN. Other types of aliases are also being investigated.