Cash & Liquidity ManagementCash ManagementCash Management RegionalVirtual accounts help businesses simplify cash management in the digital era

Virtual accounts help businesses simplify cash management in the digital era

As automation becomes top of mind for many businesses, virtual accounts assist with cash management

The finance function, and financial services more generally, are at the centre of a sea change brought about by digitalisation and geopolitical uncertainty. This has driven finance professionals everywhere to leverage all possible tools and methods to make their businesses more resilient and agile. Virtual accounts are one such avenue that are increasingly coming into focus.

On September 15, The Global Treasurer – in partnership with Infosys Finacle – ran the Rethinking Cash Management Propositions with Virtual Accounts webinar. The event fostered a discussion around how virtual accounts could play a pivotal part in strengthening the financial services ecosystem in the future.

The panel comprised Justin Silsbury, lead product manager at Infosys Finacle, Thomas Halpin, regional director of North America Global Payment Solutions at HSBC, and Jerome Cavaliero, head of Cash Management, Global Sales and Coordination at UniCredit.

This article recounts the salient observations made by the expert panel on the webinar. To listen in to the webinar recording in full, please <click here>.

What are virtual accounts?

The webinar kicked off with the panel explaining how virtual accounts make cash management easier for any business. Unlike regular physical accounts, these accounts are not on the bank’s balance sheet ledgers, Infosys’ Silsbury explained.

Since they sit beneath a customer’s current account or physical account like a digital sub-ledger, it opens up a variety of possibilities. While the combination of virtual accounts and technology is unlocking new possibilities, these accounts by themselves are not a new concept, Silsbury added, as companies have been using them for nearly two decades now.

When first developed, virtual accounts were used by single-entity companies to improve their receivables, payables and reconciliation processes. New use cases have since emerged; businesses with a strong client focus such as law firms, property management firms and pension firms, began to use virtual accounts a few years ago to better separate client money.

Large corporations are now using these accounts to reflect their organisational structure, Silsbury observed. In effect, this provides the company with an in-house bank which gives it higher visibility and control over its payables, receivables, and loan positions. According to HSBC’s Halpin, the resulting optimisation and higher efficiency of cash management are indispensable in the current challenging economic environment.

Digitisation boosts the benefits

It is not just large companies, professional services firms, or retail businesses that found virtual accounts useful; businesses of all sizes and sectors can benefit, the panel opined. The key advantages to be gained from a virtual accounts structure are improved working capital and visibility and lower costs.

Digitisation adds to the convenience and flexibility of these accounts since it enables companies to self-serve to a much higher degree, Silsbury observed.

This is driving greater adoption, and customers are reducing the number of physical accounts they have and the banks they have relationships with, he added, as virtual accounts structures meet many of their needs.

HSBC’s Halpin said this ultimately leads to deeper and more rewarding relationships.

Reduced operational interest rate risks are another important benefit, observed Silsbury. Also, the greater visibility and rationalisation enable banks to understand their customers better and provide tailored service. Some regulatory compliance such as reporting of balances is also easier for banks, Justin said.

Another plus, according to Halpin, is the near-instantaneous account setting-up and transactions that are apace with the speed of doing business in the digital era. This helps considerably to improve a company’s liquidity management.

Pushing new boundaries with virtual accounts

More and more, artificial intelligence (AI) and embedded analytics are underpinning virtual accounts structures to provide a complete view of payables and receivables, helping organisations harness this data effectively, Halpin explained to the virtual audience.

Unicredit’s Cavaliero noted that given these insights are provided using real-time data, cash flow forecasting can be done more accurately and in a much shorter timeframe. And ever since such automation has come into play, manual reconciliation is no longer needed, driving down costs and freeing up valuable employee time to pursue creative, value-added tasks, Cavaliero added.

Centralisation of data by AI also helps improved reconciliation by the receivables management solution and appropriate assignment to the right virtual accounts, Halpin said, on the synergy of receivables and virtual accounts management.

Automated reporting frameworks built on this connected digital infrastructure of AI and virtual accounts deliver insights of far greater value than most regular reporting, according to Halpin.

This is being integrated into back offices, boosting end-to-end transparency and visibility of an organisation’s liquidity position, Cavaliero added. Fraud prevention is an added benefit of higher transparency, Halpin noted.

An evolutionary curve: the future of virtual accounts?

The panel agreed that virtual accounts’ structures enhanced current liquidity management methods such as notional pooling. Currently, they complement physical accounts.

According to HSBC’s Halpin, the next 12 -18 months will see accelerated adoption due to the added pressure that finance and treasury departments are currently experiencing. With greater adoption, companies will put in place specific internal oversight for virtual accounts structures, he said.

Ecosystem partners will respond by coming up with better tools to help customers integrate their virtual accounts into TMS and ERP systems and centralise their controls, so they can benefit from developments such as open banking. Virtual accounts will be subject to the same regulations and controls as physical accounts.

Going forward, virtual accounts will take over some activities, allowing the core solution to focus on pivotal functions, Infosys’ Silsbury said. Currently, regulatory differences limit virtual account structures to within countries. Physical sweeping is still needed for cross-border transactions and getting money into the head office account of a company.

At some point, these accounts may completely replace physical ones. In the future, we may have the ability to set up virtual account structures globally, Silsbury concluded.

About the Panellists:

Justin Silsbury, who has in-depth experience in the cash and liquidity domain, is responsible for driving the product roadmap for competitive advantage at Infosys Finacle as Lead Product Manager.

Thomas W Halpin, an expert in transaction banking solutions, currently leads a team that focuses on delivering innovative client solutions at HSBC, North America Global Payment Solutions.

Jerome Cavaliero has two decades of experience in cash management and helms the cash management franchise arm at UniCredit in Paris.

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