A report from Aite Group, 'Virtual Accounts: The Power Behind Successful Integrated Treasury Strategies', has explored the past few years’ surge of interest in VAM, a long-established tool used by corporate treasurers as part of their cash management toolkit.

Banks’ existing virtual account management (VAM) services continue to deliver improved cash management and operational efficiencies, and have evolved to become part of a broader cash management toolkit as well as an enabler of product and service innovation. 

At the same time, new market entrants have recognised the capabilities of VAM and are developing new business and corporate products and services capitalising on them. The result will be an improvement in business and corporate banking, both in terms of the services that banks and other providers will be able to offer, and in the relationship between service provider and business customer. 

“The increasing implementation of real-time payments infrastructures, combined with API-enabled open banking, is turbo-charging the use of VAM in corporate and business banking,” commented David Bannister, senior analyst at Aite Group and author of the report. “New entrants are able to create offerings for small and midsize businesses, while established service providers in the corporate banking segment can add sophisticated services to complement their experience in complex implementations.”

Capturing the benefits

The Aite Group report notes that the cash and liquidity management capabilities of VAM processes will be greatly improved over the next few years by the implementation of real-time payment infrastructures internationally, which means cleared account balances are more up to date. This will expand the usefulness of VAM, facilitating the provision of immediate and clear insights into balance and transaction positions down to business activity level.

VAM is also an enabler for on-behalf-of (OBO) transactions, where money is collected and/or paid on behalf of third parties or, in the case of large corporations, for the centralization of payable and receivable accounts used by subsidiaries. More widely, OBO structures allow clients to separate accounts that hold client money - for example, in real-estate management, in which rents and fees are collected from multiple tenants on behalf of the building owner, or in the education sector, for which it is essential to track which students have paid.

Corporates can also benefit from the control that the reduction accounts and banking relationships brings. One of the many insightful case studies in the Aite Group report notes that Hitachi Vantara, a subsidiary of the Japanese industrial giant, estimates that it has reduced its banking costs by 30% to 40% through a rationalisation of its bank accounts as part of a VAM implementation.

Banks keen to service the demand

As the Aite Group report makes clear, virtual accounts are by no means a new innovation, but their ability to bring additional benefits in a time of open banking and real-time payments is a real driver in their popularity with corporate treasurers today. As such, banks are continuing to launch new and upgraded virtual account offerings.

A recent example of this is Societe Generale, which a couple of weeks ago rolled out a virtual accounts offer for large European corporates. The solution aims to make treasury management easier through the improved identification and monitoring of payments. The offer provides the bank's European corporate clients with an unlimited amount of virtual account numbers (vIBAN), all related to the same real bank account that holds the company’s liquidity. Coupled with a reporting system, it allows real-time reporting on the liquidity, both aggregated and analytical.  

Through the customisable allocation of vIBANs among their own clients and providers (such as individual, grouped, and geographical), corporates can have an overview of every incoming and outgoing payment, suited to their own monitoring needs. The solution allows for automated reconciliation of incoming payments and invoices, as well as account structure rationalisation to reduce the constraints of administering numerous real bank accounts.

EDF was Societe Generale’s first corporate client to implement the virtual accounts solution, customised to meet the specific needs of the organisation. Jérémy Roublique, head of Payment Solutions for EDF said: “When the project was launched, we had not fully anticipated the offer would give us this degree of possibility to optimise our internal processes. The solution, built collaboratively with Societe Generale, enables the implementation of dedicated reports on operations that require reinforced daily monitoring. This service is fully in line with the process undertaken within the EDF Group of industrialising our cash flow processes and reducing the number of real bank accounts.”

Additionally, the new Goldman Sachs digital transaction banking service built entirely from scratch in the cloud, will offer virtual accounts on its API-enabled platform, alongside analytics, liquidity management, and payments.