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Virtual accounts are revolutionising cash management & payments/collections

Virtual accounts have been widely adopted by insurance companies, pension funds and asset managers for segregation of clients’ funds. One of the leading examples of the use of virtual technology is CashFac which is used by solicitors, investment and many other companies to keep clients funds separate whilst at the same not having separate bank accounts which are costly and clumsy to administer. Using this virtual account technology, CashFac have developed a wide range of services including liquidity management solutions, cash optimizer solutions for corporates, etc.

In virtual banking technology physical ledger accounts are replaced by virtual bank accounts held in a virtual banking system (VAM). Companies could, theoretically, run their whole operations with just one bank account, and that is just the start, virtual account technology and the approach is now being used in many different ways. It is starting to transform approaches to cash management, and in how payments are made and collected. It also provides much more self-service control for corporates. 

In Cash Management 
Tieto, a leading supplier of Virtual Banking technology to banks, uses a shipping example to show the potential of virtual technology in simplifying and reducing several types of costs.

Shipping Management Company application

Source & Copyright©2014 - Tieto

The shipping company has shadow accounts at the top level reflecting the physical accounts the Shipping Management has with their bank. The virtual accounts eliminate the need to have multiple physical accounts at individual ship level. The virtual accounts enable differentiation of expenses, such as salaries, docking fees, etc. at ship level, and also enable a consolidated transfer of funds on a periodic basis to minimise cost and complexity using automated sweep features. The account hierarchies of the virtual accounts can be changed by the shipping company without any request to or intervention by the bank. Other benefits of this structure include automated reconciliation, improved FX management and full knowledge of account balances.

This virtual banking technology is relatively easy for banks to employ. They don’t have to replace their legacy banking systems. Instead banks, are able to connect their existing systems through an integration layer to the Virtual Account Management package.

In payment collection
Virtual accounts are increasingly used in making and collecting payments. Examples of how virtual accounts are used, include:

  • virtual cards use a temporary account number to uniquely identify the payment and tie it to a specific bill or invoice, achieving the cost saving Straight Through Reconciliation that corporate treasurers dream of - see ‘Virtual card usage is going global’.
  • Earthport, the low cost international payment provider for banks and large corporates, also uses virtual accounts in their bank accounts around the world to identify the payments channeled through local accounts.
  • SmartCollect from RBS has been available in 10 countries in Asia-Pacific since 2011. The receivables services uses reference accounts. The beneficiary can choose whether the reference account is allocated per client or per invoice or can adopt their own internal identification system. This system is used by IATA to collect fees from its customers across Asia Pacific, see.

The latest example of the use of virtual accounts is BofA Merrill’s new service in Europe in which virtual accounts are set up for each customer of the corporate client, as defined by the corporate client, as a structure that references a corporate client’s master account and aimed at supporting the receivables reconciliation process.

Partner banking cash management solutions
Possibly, the biggest impact of the spread of easily available virtual account technology could be in enabling lead banks to improve the quality and depth of cash management services available at their partner banks. Instead of just accepting the basic bank accounts at the partner, they can introduce a hierarchy of virtual accounts which can be under the control of the corporate client. It will take time, but this could transform international cash management and the role of correspondent banks. 


CTMfile take: Virtual banking and virtual accounts open up all sorts of possibilities in cash management and payments/collections. Banks and suppliers will differentiate themselves by how they exploit this opportunity.


This item appears in the following sections:
Cash & Liquidity Management
Cash Concentration in Liquidity Management
Partner Banking & ICM Solutions
Collecting International Bill Payments
Regular Bill Payments from Consumers

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