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Virtual account management liquidity product from BofA Merrill

Banks have been offering virtual account based products for many years using the technology to simplify and improve the efficiency of liquidity solutions. Over the last couple of years they have started to package their solutions. The latest example is BofA Merrill’s Liquidity Express, a new Virtual Account Management (VAM)-based solution which offers an alternative to notional pooling and physical cash concentration. Liquidity Express allows clients to consolidate funds from multiple accounts into a single balance position and categorise and report these transfers using a virtual account arrangement. This ‘all-in-one’ tool combines BofA Merrill’s:

  • Virtual Account Management technology 
  • Global Liquidity Platform
  • CashPro Assistant Analytics & Forecasting capabilities

into a new liquidity package:

Source & Copyright©2018 - BofA Merrill Corp

BofA Merrill claim that Liquidity Express will simplify client account structures, saving time and money.

The differences from notional pool & ZBA solutions

BofA Merrill explain that the main differences are that in the traditional cash concentration and pooling solutions involve sweeping from the physical accounts to a header account which normally has some offset within the account. While Liquidity Express aims to minimise the number of physical bank accounts by turning many of the accounts in a liquidity management structure into virtual accounts, so within one physica account there can be many virtual accounts. 

Another important difference is there is no need for cross-guarantees between the virtual accounts, unlike in a notional pool structure based on physical accounts. Importantly, the KYC anti-money laundering issue of identifying who owns the account within the Liquidity Express pool is avoided, at the moment, by restricting Liquidity Express to single entity pools.

Benefits 

BofA Merrill believe that the key benefits of the Liquidity Express solution are that:

  • Account opening and closing are simplified
  • Significant reduction in the number of physical bank accounts required
  • Simplification of collections as each virtual account can have its own IBAN, so funds go directly to the correct account  
  • Cost reduction due to fewer fees and account maintenance charges
  • Enabling borrowing and lending between the virtual accounts. 

To understand the possible impact of Liquidity Express, BofA Merrill has modelled the likely impact of Liquidity Express on a MNC replacing a liquidity structure using the notional pool and ZBA approach. They found that overall saving in bank fees - account maintenance, ancillary fees, etc. - and reducing the operational overhead of setting up and running a traditional pool was some 70%. Not only this BofA Merrill have tiered their charges for Liquidity Express which also reduces the cost as the liquidity management structure grows.

CTMfile: Surely this is lost income for BofA Merrill? Mark Smith, global head of Liquidity Management for GTS responded, “Our company’s purpose is to help make financial lives better, through the power of every connection. Liquidity Express precisely fits this purpose.”

Roll out 

Initially the Liquidity Express will be available as a single entity solution and the roll out will focus on the small MNCs who have less complex single entity liquidity management needs. However, BofA Merrill expect some usage in large scale liquidity management solutions as well, but the main focus will be on smaller MNCs.

Bank account holdings

Although most corporates world-wide claim that they have programmes to reduce the number of bank accounts they hold, BofA Merrill say they are still experiencing a growth in bank accounts. This is surprising as virtual account technology definitely has the potential to reduce accounts, and treasury management systems have, for years, run sub-accounts within their internal accounts. But the issues and accounting involved in running virtual account structures liquidity management solutions are not easy. Henrik Lang, head of Liquidity Management for GTS EMEA says that, “"Having introduced VAM four years ago, we understand the legal, regulatory and tax complexities of traditional liquidity structures – and know what can and can’t be done through a virtual account structure. With Liquidity Express, we’re able to add value for our clients, by using technology and innovation that helps reduce complexity and increases efficiency in their liquidity structures.”


CTMfile take: This elegantly simple and effective liquidity product shows the future of liquidity management solutions: the account structure will be part of a liquidity platform supported by cash flow forecasting and analytics capabilities. They will range from complex combinations such as multi-entity notional pooling and ZBA structures, to the single entity virtual account based structures like the first version of Liquidity Express. Liquidity management just got easier. 


This item appears in the following sections:
Cash Concentration in Liquidity Management
Global Cash & Liquidity Management
Liquidity Risk Management
electronic Bank Account Management

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