Skip to main content Skip to Footer

LATEST THINKING


Capturing the Virtual Accounts Management market

Overview

The need for better control and visibility over their cash inflow and outflow—and liquidity positions—has led corporates to seek smarter transaction banking alternatives like virtual accounts. These are a series of dummy accounts used to make and receive payments on behalf of one physical account. Virtual accounts also offer corporates the ability to reconcile payments in real time. West European banks like Deutsche Bank and UniCredit already offer virtual accounts to their corporate clients.

Corporates with multiple banking relationships, multiple accounts across different banks and with a need to rationalize complex accounting structures can especially benefit from virtual accounts. They can virtually administer inter-company loans, calculate interest, increase cost efficiencies, simplify cash and liquidity management, and increase straight-through processing (STP) rates in reconciliation.

A Virtual Account Management (VAM) platform can help corporates create, manage and monitor virtual accounts better. They offer benefits like a self-servicing VAM engine, a dashboard view to account information and a sophisticated reporting module, in addition to payments and liquidity management. While they can significantly reduce the investments banks require to stay active in the industry, VAM platforms can also complicate a bank’s ability to have a single comprehensive view of their customers.

Large universal banks with VAM offerings pose a competitive threat to local banks. They can compete in local markets without building a physical presence, commoditize payments services and easily drive down local bank revenues.

image

Virtual Accounts and Virtual Account Management

DOWNLOAD VIRTUAL ACCOUNTS AND VIRTUAL ACCOUNT MANAGEMENT [PDF]

KEY FINDINGS/ANALYSIS

Key findings and analysis about virtual accounts and VAM platforms:

  • Universal global banks with VAM offerings pose a serious competitive threat to local banks.

  • VAM solutions give clients the power to create, manage and monitor virtual accounts.

  • Questions regarding tax, know-your-customer formalities and legal impact need to be addressed while operating virtual accounts.

  • Putting the customer in control may pose problems for banks in monitoring suspicious behavior.

"Virtual accounts may require significant time and effort from both banks and customers, but offer great benefits."

RECOMMENDATIONS

Five recommendations for banks looking to foray into the VAM sector:

1

Explore product relevancy: Find out if products like notional pooling, netting and in-house banking are relevant for your clients.

2

Formulate robust KYC frameworks: Provide clearly defined boundaries for opening and maintaining complex virtual accounting structures.

3

New proposition with instant payments: In combination with an instant payments offering, virtual accounts can offer a near-real-time settlement and reconciliation.

4

Realize operational efficiencies: Extend a VAM offering with an e-invoicing solution to reduce paper invoices.

5

Explore new client segments: Reach out to potential clients such as pension funds, trust houses and insurance companies, which could benefit from VAM to segregate funds.


DOWNLOAD VIRTUAL ACCOUNTS AND VIRTUAL ACCOUNT MANAGEMENT [PDF]