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Tailoring Treasuries: How innovation is driving comparative advantage for asset-based businesses

In this article we examine how asset-based businesses are using innovation to gain comparative advantage through increased operational agility. Firms that employ asset-based business models – predominantly found in the real estate, transportation, infrastructure or energy industries – are transitioning to in-house bank operating models utilising virtual accounts and improving the speed of onboarding new entities, while reducing operating costs from bank and account management. A case study is presented describing how an Adam Smith award-winning asset-based business applied banking innovation to achieve a highly efficient and scalable operational framework to reduce complexity and accommodate growth.

Segment Characterisation: Businesses Organised around Special Purpose Vehicles (SPVs)

Asset-based businesses are firms predominantly found in the real estate, transportation, infrastructure or energy industries. With legal structures that are organised around assets such as aircraft, vessels, properties or production plants, these firms operate dynamically where new entities – special purpose vehicles (SPVs) – are continuously formed as assets are acquired. Large numbers of SPVs are typically encapsulated within levels of holding companies achieving key business and risk mitigation objectives:

However, from a cash management perspective their complex holding company and sprawling SPV legal structures results in a proliferation of bank accounts. Time-consuming to open due to significant KYC documentation demands, bank accounts for each SPV often means months-long lead time being required before an asset can be incorporated and activated, impairing operational agility.

As account structures grow, so does the on-going effort required by dedicated treasury staff to manage bank mandates, account-level signatory cards and user entitlements. Such non-strategic administrative workload is not value-adding to a treasury organisation. Finally, from a liquidity management perspective, optimising working capital management – both funding and cash consolidation – across large bank account structures adds complexity and cost where cash sweeping is required to move balances between group companies.

In summary, while bank accounts per SPV are a useful tool to enable legal and operational segmentation, the model also elevates the cost of doing business which impacts pricing, profit & loss and competitive advantage for asset-based businesses.  As a result, many firms face a perennial imperative to rationalise bank accounts to improve competitive positioning and control costs.

Changing Financial Models Present New Opportunity

Historically, asset-based businesses have relied on secured financing to fund and capitalise asset purchases. Under secured financing arrangements, an SPV’s bank accounts are often pledged to a financing party in order to obtain a security interest in the asset in case of change of control. With SPV bank accounts so encumbered by 3rd party pledges, asset-based businesses have been limited in their ability to reduce bank accounts yet still comply with secured financing covenants. Moreover, traditional liquidity products, such as cash concentration or notional pooling, are often also unavailable, because they require transaction banks to waive their traditional set-off rights. 

In recent years, however, financing models for asset-based businesses have undergone change, thereby presenting an opportunity to streamline bank account structures by introducing in-house banking techniques like on-behalf-of (OBO) centralisation. In-house banking represents a central method by which organisations simplify their banking structures. In-house banking, widely understood to be the centralisation of financial value chain activities within by Group Treasury, includes key financial functions like transactions management, balance sheet & liquidity management and risk management. Sophisticated enterprises establish in-house banks to benefit from liquidity centralisation, working capital optimisation, process efficiency, risk mitigation, centralised control and reduced bank account management through adoption of the centralised operating model.

In-house banking frequently includes establishment of payment and collection factories with the aim of improving control and reducing the numbers of bank accounts – a key objective of many firms but especially for asset-based business models. A “collection factory” refers to the implementation of a receipts-on-behalf-of (ROBO) collection model whereby a dedicated treasury entity processes all group collections on-behalf-of subsidiaries (SPVs) through one Group bank account per currency. Similarly, a “payment factory” refers to the implementation of a pay-on-behalf-of (POBO) payment model whereby a dedicated treasury entity processes all group payments on-behalf-of subsidiaries (SPVs) through one Group bank account per currency.

Firms face a multi-year project with significant capital expenditure to select, license, implement and integrate vendor-based In-House Banking software, frequently requiring considerable professional services consultancy, to implement infrastructure to enable on-behalf-of (OBO) operations. The change management impacts should not be underestimated.

However, in recent years financial institutions have made the significant investments in systems that enable organisations to realise treasury transformation and achieve on-behalf-of (OBO) operations without the capital expenditure seen in traditional centralisation projects. At the core of these bank-offered in-house bank platforms are clearing-routable virtual bank accounts.

A Bank Solution for Achieving In-house Banking Enablement

Clearing-addressable reference accounts have been offered by banks for decades to assist with reconciliation of collections. However, virtual account solutions can now be applied to enable centralisation of payables as well. This innovation offers an alternative method for achieving the holy grail of cash management for many treasuries – reducing bank accounts –through implementing  OBO virtual account structures.

What makes in-house banking and on-behalf-of operations especially powerful with virtual accounts is that the Treasury organisation achieves real-time cash centralisation without fracturing cash or requiring sweeping, whilst operational companies utilise decentralised and separate virtual account reporting for managing their collection and payment activity. This model enables Treasury to devolve bookkeeping to the respective group companies and avoid costly TMS-to-ERP integration thanks to standard bank format reporting. This is not something that can be achieved with traditional vendor-based in-house bank platforms.

Don’t go it alone: Rely on a Strategic Banking Partner

Difficulty funding and executing change management inhibits many asset-based businesses from realising Treasury transformation. A firm's entire people, processes and systems are geared around the status quo of legacy systems and legacy account structures. Traditionally the investment and project efforts required to unwind such setups understandably creates reluctance to implementing new operating models.

It is in partnership with a strategic and global banking partner, who is experienced in designing and implementing treasury transformation projects, that ABBs can identify and execute an adoption approach that is right for its enterprise. J.P. Morgan works closely with our clients to provide such guidance using expert consultancy and a project-based methodology to achieve a dual mandate of realising treasury’s objectives around funding optimisation and the use of cash along with ensuring the highest levels of automation for local entities’ daily operations with the lowest cost. 

For example, an OBO powered with virtual accounts more closely resembles a decentralised physical account structure from a reconciliation and bookkeeping perspective. With the standard bank format reporting of virtual accounts, each operating company applies separate balance and transaction reporting within their own accounting platform. This differs from traditional on-behalf-of solutions that require a centralised Treasury Management System or IHB platform to be integrated across the enterprise -- a massive effort in project effort and cost.

Simultaneously delivering real-time cash concentration in a single bank account per currency and decentralised operations represents a breakthrough for many ABBs which can enable realisation of the centralisation project that hitherto remained out of reach due to the investment in time and treasure required.

Award-winning Corporate Case Study

The following section spotlights how one asset-based business derived value to the organisation in terms of treasury, operations and technology from its in-house bank project that utilised virtual accounts. 

Prior to undertaking its Treasury transformation, ACWA Power maintained a complex corporate structure that relied on hierarchies of legal entities and special purpose vehicles (SPV), to manage capital allocation and financing, segregate operations and control risk. The account landscape across the group supporting the various “HoldCos” and “OpCos” comprised approximately 600 bank accounts.

Group cash management at ACWA Power was equally complex due to the proliferation of bank accounts resulting from its ever-growing corporate structure. Manually managing thousands of intercompany transactions annually, for cash concentrations, equity injections, dividend disbursements, returns processing and management fees across the group, placed severe strain on a small treasury team (who operate from Riyadh, Saudi Arabia and Dubai in the UAE). 

In 2019 the Group Treasurer, Mr. Abdul Majid Syed, drove an innovation agenda that transformed the firm’s treasury operating model.  For this effort, they were awarded Overall Winner for the prestigious 2021 Treasury Today Best in Class Treasury Solution in the Middle East/UAE. Summarising the project, ACWA Power states:

"In our treasury transformation project, ACWA Power implemented a new Treasury Management System, bank-agnostic multi-bank connectivity with SWIFT and a virtual account structure.” 

ACWA Power invited J.P. Morgan to introduce the innovative way clients were employing bank technology based on virtual accounts. ACWA Power stated:

“Different regions have a different level of technological maturity. In this region we are not far behind, but when bank guidance is available on utilising advanced tools in a proper manner, it's helpful to get everyone onboard. When the JPM team approached us on virtual accounts for in-house banking, at first, we initially concluded it wasn't possible for us. But J.P. Morgan understood our business and our requirements well. We provided them with information, and they showed us what was possible and what were the benefits. We began moving forward to work on the challenges created by so many bank accounts (600 globally). We give a lot of credit to JPM for bringing the awareness to our teams of how the virtual account product works. That was really important.”

ACWA Power is proud of the market recognition by Treasury Today and believes the results they describe are available to others, stating:

“The 2021 Adam Smith award recognises this innovative bank solution in Saudi Arabia. The benefits we saw from this project included improved working capital from freed trapped cash and recovered ROI, a transition to a scalable and highly-efficient centralised model with no business interruption during a pandemic, and 100% visibility over all bank accounts - both physical and virtual. The savings have already paid for the investment cost and we anticipate that multiplying as we build-out the set-up.

The solutions we implemented and the support from our solution partners like J.P. Morgan made the difference.”

The link to the complete Treasury Today case study can be found here.


Transforming an organisation’s treasury operating model can deliver tremendous value by introducing a highly efficient and scalable framework to reduce complexity and accommodate growth. Following a traditional path of centralisation requires require considerable capital expenditure. Banking innovations have emerged offering many organisations an alternative approach with certain industries such as asset-based businesses standing to see some of the greatest benefits.

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