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4 use cases where non-bank financial institutions can leverage virtual accounts

Virtual Accounts are becoming more mainstream for corporate clients of banks but there are also important benefits for Non-Bank Financial Institutions (NBFIs) customers. This blog explores those.

Torill H. Larsen / June 06, 2022

The benefits of Virtual Account Management (VAM) for corporates are widely accepted as evidenced by the fact that more banks and therefore more corporate treasuries are using them. However, there are other uses for virtual accounts that are beginning to be noticed.

For Non-Bank Financial Institutions (NBFI’s) there is a need to identify and sometimes segregate client money (Escrow services). This is especially true for Fund Managers, Pension fund managers, Insurance brokers and the like. Often the issues relate to the sheer quantity of the payments, identifying where they came from, allocating them back to the owner but still retaining a total overall position. Up to now operating physical bank accounts has been the most common way for companies to manage this but this is cumbersome and expensive.

Virtual accounts offer a much easier solution because they can be allocated to individual NBFI customers which are then linked to the “real” or physical account. In this way they can be used to represent individual customers of the NBFI. This then allows for individual user tracking of the account movements, making for easier and improved insights into the client base.

The key benefit that VAM brings to NBFIs includes the ability to reduce their real accounts while offering an enhanced service to their clients. Using virtual accounts in this way allows the NBFI to operate with fewer real accounts while serving their customers in multiple ways. VAM offers NBFIs flexibility and choice in what they can offer their clients and helps with fulfilling regulatory requirements on segregation for managing clients or investors funds.

For NBFIs the VAM solution delivers real-time visibility and operational control of client funds, it also smooths transaction allocations and interest apportionment at the underlying client level. The solution that the banking and transactional services and administration are performed by customer users.

We offer a highlight of 4 areas where this capability brings great value for the corporate:

1. Cash and Currency overview

The beauty of virtual accounts is that they can be hierarchical in nature so the ability for a NBFI to segregate their client data into different reporting classes is possible. VAM also provides multi-currency capability so the NBFI end client can be provided with accurate information on the position in different currencies. In addition, VAM supports cross currency pooling which enhances liquidity and reduces FX costs. With VAM a complete segregation of funds, on the level of the NBFI customer’s own funds and the funds of its clients, is available. Overview of funds of the clients is visible on multiple levels for further segregation.

2. Marketplace overview

Another area where VAM can add value is the internet marketplace space. Marketplace firms such as Amazon, eBay, Etsy etc deal with many vendors and act as intermediaries connecting buyers and sellers online. Virtual accounts can also offer new capabilities for these companies to manage their finances while at the same time reducing costs and improving reporting.

An issue for marketplace firms is how to manage the quantity of receivables from multiple clients and allocate those receivables to the correct account. A virtual receivables account uses a published virtual IBAN for payments collections. These virtual accounts can then be linked to their physical IBAN accounts. So, a typical application of a virtual receivables account enables payments collections from end customers in an efficient manner.

3. Commission and fee management

Another case is the handling of merchant payments and charges, typically commissions and fees. The ability to allocate multiple virtual accounts to specific items, in this case, commissions or fees makes the task easier and because it can be fully automated errors are less likely.

4. Geography specific overviews

Virtual accounts are ideal when a company needs to collect balance information centrally and the aggregated amounts represent different parts of the company’s business. An example might be a travel company which is split on a geographical basis.

In addition, while the marketplace company may operate from a single location it is quite usual for its customers to be based in multiple countries. Virtual IBANs can help here, as they offer a multi-currency, multi-jurisdictional banking solution for foreign exchange (FX) and payments organisations without the need for a different banking relationship in each country. For example, businesses can direct payments into a separate virtual IBAN accounts in local currencies that are controlled from a master IBAN account. Creating sub-accounts for regions, product ranges, and even customers in this way makes managing customer payments, settlement, and reconciliation much easier.


Torill H. Larsen
Lead product manager, cash management at Tietoevry

Torill has extensive banking and finance background with focus towards cash management, payments and trade finance working close to customer and developing solutions for the bank’s customers. In her current position, Torill works with strategy for cash management area and liquidity management solutions and services. 


Torill H. Larsen

Lead product manager, cash management at Tietoevry

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