Virtual Accounts Bring Opportunity Amid Corporate Banking Reform


There is some concern that widespread financial regulations like Basel III may lead economies to lose sight of FinTech innovation and overall economic growth. Corporates in particular are struggling with some of these financial reforms, according to research from the U.S. Chamber of Commerce released last year. Nearly 80 percent of businesses surveyed in that report said they have taken some type of measure to make up for the cost of compliance, with Basel III cited as having the greatest negative impact for businesses.

Basel III is a set of voluntary rules that impact banks’ risk management and capital requirements, among other things, and could lead to corporate challenges in accessing bank financing.

But a new whitepaper from corporate cash management firm Cashfac Technologies, published earlier this month, offers a new spin on the impact of regulations like Basel III on corporate treasurers. According to the firm’s report, “Virtual Accounts: Turning Adversity Into Advantage,” reforms like Basel III may actually promote banks’ adoption of financial technologies, ultimately improving business customers’ cash management capabilities.

“Regulatory changes such as Basel III mean that banks need to address core areas of their governance and compliance activities,” the paper stated. “But regulation is also an opportunity. A chance for banks to refocus products and services to respond to what business customers want — greater control, better visibility and processes that are more efficient and cost-effective.”

Key to grasping that opportunity, Cashfac declared, are virtual bank accounts and their use of innovative banking technology to help companies digitally manage their cash. The banking sector is moving away from offering a simple, straightforward view via statements and transaction data, Cashfac noted. Today, businesses need a more sophisticated view of their cash positions and a broader array of payments and financial services.

For corporates, virtual banking leads to some clear benefits, including a single, streamlined view of finances, a way to more efficiently manage financial documents like invoices and payroll, easier auditing, payment and accounting automation and a stronger grasp of financial data analytics. For banks, however, the benefits are just as diverse. Cashfac pointed to the lower costs of virtual banking for a financial institution, the ability to offer more tailored solutions to corporate clients and a stronger relationship with customers.

All of that indeed leads to a stronger competitive position for a bank, but, Cashfac noted, virtual banking services enable a FI to adhere to Basel III rules and to be more agile in responding to Basel III demands like reporting and notional pooling.

For its report, Cashfac spoke to several players in the corporate banking landscape, including Nick Morrissey, director of client integration and digital client access at Barclays Corporate.

Virtual accounts, he said, “have proved valuable in helping our clients take a more holistic approach to cash management.” They can configure themselves to corporates’ complex financial needs, which vary across industry, he said. And while virtual accounts can certainly aid in Basel III compliance, Morrissey noted that there are broader opportunities at play.

“While virtual accounts help to overcome many of the problems arising from Basel III, the real issue is far wider than client money management,” he told Cashfac. “For us, it’s more about combining this with other payment, reporting and receipt management. This is where there is an opportunity for banks to build interesting propositions [and] when we use our experience to combine this with a technology platform that is easy to use. This is then an attractive business proposition that clients want to use.”

According to Cashfac, virtual accounts are the best way for a bank to meet contemporary challenges — “maintain traditions while championing change for the customer.” Apprehension is growing across the financial services space with regards to the impact regulation will have, especially when it comes to Basel III. Coupled with the threat of emerging FinTech competitors, banks must deploy agile, digital solutions — to “think like a FinTech” — to survive these challenges, Cashfac concluded.