B2B Payments

The Globalization Of B2B Virtual Accounts

Markus Straussfeld, head of international cash management at UniCredit (an Italian bank focusing on cross-border payments), argues that the latest moved forward by the Single Euro Payments Area (SEPA) will “provide companies with a wealth of opportunities to generate big efficiencies. Even businesses that don’t have European interests are finding these changes enlightening.”

In a piece penned for Treasury And Risk, Straussfeld writes that the Euro payments change—which he dubs “the newly harmonized payment system”—will deliver a wealth of opportunities.

“By prompting the end of historical division in Europe—division that resulted from the various laws and regulations within national boundaries across the continent—SEPA allows payment processes to be centralized to a degree that wasn’t previously possible or, at the very least, was previously much more complex. For instance, the rationalization of payment types serves as the foundation for corporates to create payment and collections factories. These centralized units send or receive payments for multiple subsidiaries,” Straussfeld wrote. “A payment or collections factory boosts transparency and control in the company’s liquidity and cash management. At the same time, it decreases costs and risks, both in terms of individual transactions and IT infrastructure. Taken to the extreme, companies could eventually run their entire Eurozone operations through a single euro-denominated bank account. By rationalizing their banking operations in this way, businesses can cut out unnecessary accounts, e-banking channels, and even entire banking relationships.”

In the B2B space, these changes are crucial. As companies reduce their number of physical bank accounts, he said, they will rely more on virtual accounts “to retain granularity of information in reporting out to business units on payments or receivables” and “in Europe, a virtual account structure typically involves a single, centralized bank account. The single account is then divided, using virtual accounts, into individual branch or profit-center channels. Companies can use local accounts only for payments that must be made in a specific jurisdiction, such as tax payments, and direct all other payments and receivables through the single bank account.”

Here’s where things get interesting. The virtual account structure includes local identifiers, and the virtual account number can act as a customer identifier and it can also be linked to a a specific subsidiary or branch.

“This allows branch managers and group treasurers to look at transactions on a branch-by-branch basis, even though physical payments pass through only one account. Moreover, these systems have the potential to provide an individual statement for each account, which means that the corporate treasury department and local subsidiaries retain all the crucial information necessary for efficient, automated reconciliation. In our view, these developments and others like them represent the next phase of treasury management, not only in the SEPA zone, but worldwide. And there’s nothing (beyond exchange controls, perhaps) preventing currencies outside the SEPA zone from being added to a virtual account structure in the Eurozone. Taking the efficiency-generation opportunities of virtual accounts to the logical—but still feasible—conclusion, global or regional payment hubs for multinational corporates might soon be operating across multiple continents.”

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