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Banking Relations / Global Treasury

Virtual Accounts Appealing, but Challenges Abound

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January 17, 2019

Some NeuGroup peer group members have concerns about virtual accounts; others use them readily

Money Ball Lg 209X119Virtual accounts mean different things to different people. One view is that to take full advantage, you want just one physical bank account, putting all affiliates in all countries (at least in Europe) in a virtual account setup.

However, at a NeuGroup European Treasurers’ Peer Group meeting in late 2018, several group members raised concerns and detailed some of the challenges they face using this approach.

First, virtual accounts lose the audit trail footprint of a physical bank account, which is often relied upon for tax-related supporting documentation. Some fear that this could lead to increased tax audits in stringent jurisdictions, creating unnecessary hassles.

Second, virtual account solutions from banks covering multiple legal entities involve levels of know your customer (KyC) documentation comparable to what’s required for physical bank accounts—so there’s no big advantage.

Third, one member said he faced resistance from finance colleagues alarmed by the word “virtual.” After more internal discussion, treasury changed the name to subaccounts. Meanwhile, some corporates have chosen to implement virtual accounts for limited purposes where the benefits are clear and the risks are contained. One example: using them for accounts receivable recon-ciliation for customer payments to a single legal entity.

Despite the concerns, some multinationals are forging ahead with virtual accounts, as banks continue making progress in offering them. This has created new opportunities for MNCs in big undertakings like refining in-house bank interfaces with external banks. And in other Neugroups, members who favor virtual accounts said their companies use them in smaller markets and developing countries. One Global Cash and Banking (GCBG) peer group member utilizes virtual accounts in Russia and Brazil for connecting multiple bank accounts using unique identifiers. Another GCBG member said her company has entities collecting Singapore dollars in Singapore, Puerto Rico and Australia that are linked to a virtual account, which sweeps the money to a London-based, in-house bank account at Citibank for cash pooling.

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