A bank identification number (BIN) represents the first four to six digits on a credit card. The first four to six digits identify the financial institution that issued the card. The BIN is a security measure to protect both consumers and merchants engaging in online transactions. It can provide useful information to identify cases of identity theft, stolen cards, and fraud by comparing the data obtained from the BIN to the card holder’s data.
In addition to identifying the financial institution, the BIN can track the geographic location of the bank that issued the card. Participants in online transactions can detect cases of fraud and identity theft by matching the geographic location of the cardholder to the location provided by the BIN.
Since other financial institutions aside from banks also issue cards, BIN is also known as an issuer identification number (IIN).
How Do Bank Identification Numbers Work?
The first character of the BIN is called an industry identifier. It is used to identify the industry of the issuing company. For example, cards that start with a 4 or 5 belong to banks and financial institutions. Similarly, other numbers are reserved for other industries, including airlines, entertainment, and hospitality. The remaining five digits of the BIN identify the card-issuing institution.
A BIN helps track the origin of a consumer’s funds. When a credit card is swiped, the card machine scans the BIN and identifies the account associated with it. Once it identifies the account associated with the card, it puts in a request to withdraw funds from the account to complete the transaction.
The issuer of the card takes only a few seconds to approve the request. The process is generally automated. In some cases, for example, the request gets denied if the value of the transaction is greater than the daily withdrawal limit.
The BIN is extremely important because, without it, credit card machines and online payment platforms will not be able to identify the account from which the money needs to be debited, and the transaction will not take place.
Importance of Bank Identification Numbers
BINs not only identify the card-issuing institution and their location but also make the data known to the person engaging in the transaction. It helps the participants in online transactions to verify the information and identify cases of fraud, stolen cards, and identity theft.
Let us consider an example of a consumer making an online purchase. Once the consumer enters his card number, the online retailer can identify the financial institution that issued the card and their location. While it does not help in itself, the online retailer can match the information to the location on the customer’s profile. It can help in verifying the authenticity of the transaction.
After cross-checking the information, if there is any reason to believe that the transaction is a fraud, the online retailer can investigate further. Similarly, consumers transferring funds to merchants through online banking can verify the merchant’s information before proceeding with a transaction.
In a world where trade and commerce are continuously moving online, BINs play a very important function by protecting both merchants and consumers. They are critical to ensuring that online transactions flow smoothly.
CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:
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