Corporates usually open hundreds of accounts to manage their operations, track their receivables and segregate funds relating to different entities / subsidiaries etc. Banks find it a huge operational overhead to do KYC and maintain these numerous accounts and hence are offering Virtual Account based solutions to their corporate clients.  Corporates are also very interested in this offering as it helps them better manage their liquidity, centralize operations, reduce DSO and improve account reconciliation.

Since product managers and business is in a tearing hurry to offer these solutions, Banks Technology Teams are mostly attempting to address this need using one of three approaches.

One is to attempt to extend the existing core banking platforms with the thinking that Virtual Accounts are really "accounts" with debits/credits, with statements, with limits, payments etc. This approach does not work very well in the long run as Virtual Accounts need to be “off balance-sheet” while conventional accounts on a core DDA platform are “on balance-sheet”. Moreover, conventional core banking "accounts" are not designed to have flexible account numbering formats (to match a corporate ERP system for instance) and are not designed to support a complex reporting hierarchy. Some core banking vendors have announced support for Virtual Accounts, but again it must be noted that core banking vendors have done this for specific use cases such as support for multi-currency accounts (where a single virtual account can be mapped to a physical account in USD, EUR, GBP etc.) and not necessarily taking into account a holistic corporate requirement ( read COBO, POBO, ROBO, IHB etc. ) for Virtual Accounts.

The second workaround used by bank IT teams is to extend their existing Collections Platform or existing Payer-Id solutions. While Collections and Cash Management platforms have included virtual accounts for aeons, these are again focussed only on receivables reconciliation and provide a virtual account to each supplier / dealer / payer etc. and in some banks they provide a "payer-id" to each payer so that the seller is able to quickly auto reconcile his invoices against payments. In some banks this is called a "virtual-iban" solution where a virtual IBAN range is provided and corporates can receive payments against those virtual IBANS.  This is also a very short term tactical solution which will not scale to support the entire gamut of virtual account features.

The third approach used in Banks is to treat Virtual Accounts as a "simple in-house IT project" which can be completed quickly using in-house IT staff and augmented by some software developers from system integrators / IT outsourcing companies. One of the reasons cited is that virtual accounts need to interact closely with the existing IT eco-system in the bank (existing channels, core, payment engine etc.) and hence it’s best done as an internet IT project. Many large banks have actually taken this approach initially and then later switched to a product vendor because the in-house system did not scale or did not complete in time or simply could not meet all the requirements of the end corporates.

The Virtual Accounts space may also come under increasing regulatory cover over the next few years and that is one more reason in house solutions / workarounds will require  a lot of rework to stay current with market and regulatory needs such as API’s ( PSD2), KYC, PSD2 Strong Authentication, Instant Payments etc.  It is clear that Virtual Accounts cannot be serviced by short term virtual solutions but banks need to adopt Real Solutions For Virtual Accounts. Though there are only a handful of product vendors who offer Virtual Banking Technology (VBT) and probably just one or two that focus exclusively on Virtual Accounts, it seems right for Banks to invest in a VBT product and benefit by being able to offer comprehensive functionality to their corporate clients and rest assured that all regulatory and business needs will be met economically with a lower TCO in the long run compared to in-house solutions