Virtual IBAN has become a popular tool for international businesses. They offer a fast way to receive payments in multiple currencies, manage transactions, and perform international financial operations. For many companies, especially those in fintech, e-commerce, or consulting, a virtual IBAN appears to be a great solution.
However, in 2025, more financial professionals are starting to consider whether a virtual IBAN is sufficient to manage settlement risk. The answer may not always be yes.
In this article, we look at what a virtual IBAN actually is, how it works, and why it may fall short when it comes to settlement. More importantly, we explain what settlement risk means, how it can affect your business, and what steps you can take to protect yourself.
What is a Virtual IBAN?
A virtual IBAN is a unique account number assigned to your business that allows you to receive payments as if you had a traditional bank account in a given currency or country. In most cases, the funds are routed to a master account held by a licensed financial institution or a non-banking provider.
From the outside, the process looks smooth. Your clients send payments to your virtual IBAN, and you see the funds arrive in your platform. You can then convert, transfer, or withdraw the funds to your local bank.
This setup is popular because it reduces costs, supports multi-currency flows, and helps small or remote businesses access global markets. But behind the scenes, it’s important to know how funds move, and who holds them, because settlement risk starts right there.
Understanding settlement risk
Settlement risk is the chance that a payment you are expecting will not be completed, either because the funds are delayed, blocked, or lost during the settlement process.
Unlike card fraud or chargebacks, this risk does not come from the customer. It comes from the institutions in between, especially the provider managing the virtual IBAN and the correspondent banks moving the money.
Key factors that increase settlement risk:
- Delays in clearing and settlement
- Provider insolvency
- Regulatory action against your provider or its partners
- Lack of direct control over client funds
- Weak or unclear terms between financial intermediaries
In short, when you use a virtual IBAN, you are relying on another party to hold and settle your funds. If something goes wrong with that party, your business could face delays, frozen payments, or even unrecoverable losses.
Why is this risk real in 2025?
Over the last two years, several payment institutions and EMIs across Europe have faced regulatory action. Some have had licences revoked. Others have experienced operational failures or lost access to their banking partners. When that happens, client funds can be delayed or even locked until the matter is resolved.
In 2023, a well-known fintech based in Central Europe had its accounts frozen when its banking partner lost access to the SEPA network. Dozens of businesses using virtual IBANs through that fintech experienced blocked payments, with some clients unable to access their funds for several weeks.
This case was not isolated. As financial regulations tighten, authorities are taking a closer look at how virtual accounts are managed, and they are not afraid to act quickly when something seems off.
The illusion of full account control
At first glance, a virtual IBAN feels like a real bank account. It has an account number, can accept payments, and sometimes even supports outbound transfers. However, it is important to remember that you do not have a direct account with the central bank or settlement system.
Instead, your virtual IBAN is usually linked to a pooled account or umbrella structure. This means your funds are co-mingled with those of other clients and managed by a provider. If the provider gets into financial trouble, your funds are exposed to more risk than in a traditional segregated account.
That’s why some virtual IBAN services include a disclaimer in the terms and conditions, stating that they are not deposit-taking institutions and that they do not guarantee protection beyond what local regulation requires.
When is a virtual IBAN not enough?
While virtual IBANs are great for receiving payments or managing collections, they are not ideal in every case. Let’s look at a few situations where relying on them alone could be risky:
1. Large-volume transactions
If your business processes high-value payments, especially above €100,000 per transaction, you may want direct access to a regulated bank account. Virtual IBAN providers may impose internal limits, hold funds for extra checks, or face delays in releasing large settlements.
2. Time-sensitive payments
If your business needs fast settlement, such as paying suppliers, contractors, or affiliates on a fixed schedule, a virtual IBAN may not give you the speed or certainty you need. Delays in processing or settlement can affect your operations and relationships.
3. High regulatory exposure
If you operate in a sector like crypto, gaming, or financial services, your virtual IBAN provider may face pressure from regulators. This can lead to blocked funds, frozen accounts, or account closures without warning.
4. Lack of direct control
When you cannot speak directly to the bank holding your funds, your options during a problem are limited. Escalations must go through the platform provider, which can add time and stress during a dispute or system failure.
How to reduce settlement risk
If your business uses virtual IBANs, that is perfectly fine, as long as you understand the limits and build safeguards. Here are some practical steps you can take to lower your exposure to settlement risk:
- Choose a regulated provider
Make sure your provider is licensed in a stable jurisdiction and subject to regular audits. Ask about their safeguarding practices and how client funds are held.
- Request transparency
Ask your provider which financial institutions actually hold your funds. Understand the chain between your customer’s payment and your final settlement. More transparency means fewer surprises.
- Diversify your accounts
Do not rely on one virtual IBAN provider. Set up backup accounts with other institutions or banks so that you can switch quickly if something goes wrong.
- Avoid holding large balances
Withdraw your funds regularly to a primary bank account under your control. Treat the virtual IBAN as a collection tool, not a wallet.
- Read the terms
Review your provider’s service agreement. Look for wording around safeguarding, delays, force majeure, and what happens if they lose access to a payment network.
When to consider a real bank account instead
There are times when a traditional business bank account, either in your home country or abroad, may be the better choice. This is especially true if you:
- Need to store large balances over long periods
- Operate in a regulated industry with compliance requirements
- Require access to trade finance or credit lines
- Must show local substance for tax or regulatory purposes
- Want greater legal protection over your funds
Although banks can be slower to open accounts and less flexible, they offer stronger legal frameworks, more secure deposits, and better recourse in case of problems.
Bottom Line
Virtual IBANs are useful tools. They help modern businesses move quickly, cut costs, and enter global markets. But they are not a full replacement for secure banking.
In 2025, settlement risk is something business owners can no longer ignore. If your company relies heavily on virtual IBANs, now is the time to review your setup, understand your exposure, and make a plan to reduce potential risk.
Whether that means diversifying providers, withdrawing funds more often, or opening a backup bank account, the goal is to stay in control. Payments should never become a source of uncertainty. With the right structure, you can enjoy the benefits of virtual IBANs while keeping your business safe and steady.
If you want to know more on this matter, don’t hesitate to schedule a free consultation with our team.
For further insights, read our article: “VAMP 2025: Key Changes to Visa’s New Fraud & Dispute Rules for Merchants & PSPs“
Disclaimer
Widelia and its affiliates do not provide tax, investment, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, investment, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Please consult https://widelia.com/disclaimer/ for more information.
