Complete clarity over working capital: A corporate virtual accounts Q&A with Nirmal Chander

Virtual accounts are revolutionizing the financial landscape by enabling banks to offer new products and features without the constraints of core modernization. Traditionally, creating virtual accounts within the core banking system involves lengthy processes and high costs, but separating virtual accounts from core banking has emerged as a game-changing solution. This approach simplifies account management, reduces costs, and enhances technological capabilities. We sat down with Nirmal Chander, Senior Director of Sales for the APAC region at Episode Six, to learn more about the transformative benefits of virtual accounts. Nirmal has over twenty years' experience working with financial institutions, and fourteen years of experience with transaction banking and SME segments within a bank.  

What is the difference between virtual accounts and traditional accounts?   

A traditional account is like any savings account or credit account. If a company opens an account, it will be either a credit account or a corporate account. A traditional account will be reported to a regulator and will also compute interest. A virtual account is a subset of the traditional account, which may not involve a KYC process. For example, a virtual account may be a child account linked to the parent’s account. The virtual account is linked to a name but may not involve identifying details required in a KYC process such as the account holder’s SSN. The virtual account does not hold funds independently and is tied to the parent account. The linked parent account bears responsibility for the child’s virtual account.  

What are the main benefits of virtual accounts existing separately from core banking?  

Historically, virtual accounts have been established within the core banking system. So, if the bank has to create new virtual accounts for corporate customers or SME customers, that will involve a rigorous KYC process, AML process, and so on. Based on some estimates, it can take anywhere from thirty to forty-five days to open a corporate bank account in some countries because of this stringent process.   

But with virtual accounts, it becomes much easier to create a relationship due to the lack of KYC process. The bank or the corporate customer can then actually start tracking the account balances, customer relationships and the overall working capital in a much quicker, easier fashion.  

The second aspect, purely from a technology perspective, is that it becomes expensive to maintain a virtual account on a legacy core banking application. Typically, the core banking platofrm charges by the number of accounts which you've created, so they will continue to charge a hefty fee for the accounts. So, it makes sense for the bank to seek virtual accounts as a solution separate from their core banking application.   

The other part is that the more virtual accounts you create, your beginning- and end-of-day interest calculation processes will increase big time, and might be delayed.    

By keeping the virtual accounts separate from core banking, you are ensuring that you're not increasing this workload and dependency on your core banking application, which can delay processing.  

What benefits can virtual accounts offer to corporations?   

Corporations can have complete visibility on their working capital across their entire ecosystem with virtual accounts. The virtual account structure helps unlock the working capital in a much easier fashion, so that corporations have total visibility on both receivables and payables.   

Through virtual accounts, corporations can tell the supplier “whenever you're making a payment, just key in this virtual identifier or virtual account number.” The corporation then knows exactly from whom the money is being paid, and where the money is going to. The reconciliation process becomes extremely simple.   

The other angle is from a relationship perspective. Because of the complex structure of corporate accounts, having virtual accounts will allow clear visibility on your overall corporate structure, across your entire ecosystem and the supply chain.   

Ultimately, the clarity over working capital that virtual accounts provide will reduce risk for the bank and help them to drive profitability for the corporate customer.   

What are the key use cases that banks can unlock by adopting a virtual accounts program?  

There are multiple use cases that banks can access. First, some legacy applications cannot create a sub account within the core banking structure. That itself is a solid use case for the bank to kick-start the virtual account process.   

For example, let’s say there’s a software solutions company that has global customers called ZWorldTech. They’re accepting payments from customers all over the world, in various currencies.  Virtual accounts allow ZWorldTech to identify a payer, activity or project associated with any specific customer by easily assigning an IBAN. They’re also making payments to various vendors in multiple countries. Now, ZWorldTech’s POBO and COBO processes are centralized, and treasury and expense management are much simpler. Virtual accounts are also less expensive for the company to run. A good virtual account solution will allow the customer to participate in the payment flow.  

 The data is readily available for how much money has been received and which balances are unpaid across all the account holders. ZWorldTech has access to which customers have paid and which balances are unpaid. There is complete clarity over working capital.  

What sets E6 virtual accounts apart from competitors?   

E6 fosters the complete cloud-native functionality which we have built. With the way our ledger has been designed, we can set up account hierarchies in a much simpler fashion. If a corporate wants to go and create sub-accounts for themselves, they can do it in an instant through an API. With the fluidity that is enabled through APIs, it becomes extremely simple for banks to implement the solution they need. Episode Six enabled virtual accounts exist as a sidecar option, so banks can just make some subtle changes to incorporate the virtual accounts structure within their system.  

About E6  

E6 helps banks and brands create payment products their customers love. We provide ledger and cards technology that can power almost any payments use case. Our cloud-based platform, TRITIUM®, is designed to fit into your existing tech stack, so you can easily build market-leading products without disrupting ongoing operations. Our solutions are scalable, flexible, and powerful, giving you the ability to stay ahead of the market and strengthen your business.   

With over 50 enterprise clients processing transactions in 29 countries, E6 is trusted by banks and brands around the world. TRITIUM offers real-time RESTful API processing, powers thousands of transactions of per second, and has market-leading compliance, security, and reliability with over 99.99% uptime and 24/7 support. Our technology is proven to make even the most ambitious product roadmap a reality.  Ready to get started? Contact us today.