Notes from a discussion on a product that treasurers would like to use—when it’s truly ready.
A presenter from Societe Generale at a recent NeuGroup Global Cash & Banking Group meeting said this about virtual accounts (VAs): “Imagine a world where you can open and close accounts at a moment’s notice, set up zero balance account (ZBA) structures, and not deal with KYC. That’s where banks imagine virtual accounts to end up.” This is the ideal world. That is:
- They’re like ZBAs in the US with all the reporting behind them, but they’re not real accounts; they exist on a book- basis only and can send money to all your entities.
- One member has been told VAs will allow them to close approximately 2,000 bank accounts and cut account costs by 40%.
- Could VAs work better than an in-house bank? Several members are looking at VAs as an alternative to IHBs.
The real world: The first hurdle is payables. Certain banks can open a series of accounts down to four tiers and only take receipts. Banks are still trying to build out the payables side. And from the banks’ point of view, the greatest interest is in using the accounts for notional pooling.
- One member said there is a reconciliation issue—intercompany loans are not trackable in an automated fashion and only reported on the physical account, a big limitation. Once that’s resolved, they could potentially have an automated loan process. Another member said the biggest implementation hurdle of the VA model is intercompany loans.
- You can only open VAs in certain countries where the bank allows it, so they may or may not be compatible with your treasury structure.
- One member has been attempting to get rid of bank accounts and implement POBO and ROBO by leveraging VAs in SAP. However, VAs have proven more painful than the company hoped.
- SAP is the system of record. Unfortunately, banks in this process like to have their system be the record of who owes whom, “which doesn’t work for our business,” the member said.
- Another member tried to do virtual accounts in India; the company’s first attempt didn’t go well.
VAs in China
- One member talked to three banks and sees the potential beauty of using VAs for payments in China: When you pay into China, you must pay a beneficiary and not someone else, so the VA structure would work.
- The problem: VAs are not allowed in China and are not accepted by the PBOC for payments. Cross-border payments for China are always physical.
- Banks said they can do cross-currency, but the member would need a pre-agreed FX spread with them (usually not a good one).
