To say that modern banking processes are “complicated” is an understatement, and the larger or more dispersed a company’s cash deposit network, the more exacerbated the problem. As enterprise account architectures quickly turn into expensive and time-consuming mazes that necessarily face distinct liquidity and regulatory requirements, which are also sometimes inefficiently managed by outdated manual means, it is clear that the traditional approach to account management is not working.
As usual, digital technology has provided the answer: Virtual Account Management (VAM). Simplified, VAM works by distributing transactions within a physical “master” account in several virtual auxiliary books. The effect is a much more understandable method of tracking finances in an integrated, transparent and holistic manner, but also with a firm degree of granular oversight and control over every sub ledger or “virtual account”. This in turn can unlock:
- Better access to funds
- More precise cash flow forecasts
- Liquidity optimization
- Lower financing cost
To learn more about the transformational potential of VAM for the banking industry, we spoke with Conor Colleary, vice president of Oracle Financial Services Group. Working directly with global financial institutions, Colleary helps them develop solutions to maximize their use of data in the digital economy. His resume also includes previous leadership roles at Misys and Thomson Reuters, which places him ideally to answer our five questions about VAM.
Special thanks also go to Vipul Pal, Director at Deloitte Consulting, for his additional contributions to our research on this topic.
The five questions of FinTech
FinTech Magazine: Before an organization decides to implement VAM, what considerations should it take into account?
Conor Collaric: Historically, VAM has been a solution for large companies that have complex structures of physical bank accounts spread around the world. With increasing globalization, the organizations that can benefit from this technology are no longer defined by their size, but by the complexity and scope of their activities. This can include companies that handle payments and collections in various currencies or that manage funds for new economy platforms, like gig workers and service providers.
FinTech Magazine: What do you think is VAM’s main value proposition?
Conor Collaric: Banks have started to realize that traditional VAM techniques of virtual IBANs and reference numbers only solve a small part of the challenges businesses face in assisting with receivables management. The second generation of VAM solutions that we see in the market support the deployment of a wide range of banking services that help corporate clients easily access their cash positions and manage their working capital at all times.
For example, today’s solutions can address additional business proposals for debt and receivables management, internal banking, and customer money management with self-service capabilities. Additionally, companies are looking to combine traditional cash management with virtual accounts. This will allow them to build a physical sweep (including relationships between multiple banks) with real-time liquidity concentration (via virtual accounts) in hybrid physical and virtual structures.
FinTech Magazine: What technologies enable Oracle’s own VAM solutions?
Conor Collaric: Built on (OCI) and adaptable microservices architecture, enables banks to offer better transaction services, including:
- Efficient liquidity management
- Real-time receivables and payables management
- Internal bank, and
- Management of clients’ money.
As the treasury priorities of corporate clients constantly change in the unpredictable global financial environment, these services are essential.
Oracle’s modern, modular solutions allow banks to choose the features that meet their exact needs, with both tactical options for faster time to market and longer term strategic options. When paired with, Oracle’s VAM provides customers with self-service capabilities so that they can perform the same actions as a banker, such as independently managing liquidity structures, completing transactions, and forecasting cash flow.
In addition, our product is flexible and system independent: able to integrate with all basic banking and payment systems used by the bank. The VAM cloud solution also ensures high levels of system availability, scalability, performance and data security.
FinTech Magazine: How would you characterize the challenges of implementing VAM?
Conor Collaric: As with any financial services project, integrating a new solution can be complicated. This is especially true here because VAM interacts with many areas of a bank, so it requires many points of contact with the bank’s systems. Oracle’s goal has been to follow standard integration models and use industry standard data exchange based on ISO20022 to help ease the integration challenge.
FinTech Magazine: Describe the effect LCA could have on the entire banking industry.
Conor Collaric: With VAM, companies must reduce costs and complexity and introduce new levels of automation through the alignment of their bank accounts and internal accounting systems. They also benefit from real-time visibility and control of their working capital. Many also centralize their secondary activities, from subsidiaries to shared service centers and global treasury operations.
Banks, in turn, can strengthen customer relationships and generate new revenue streams by offering new services that address corporate customer issues while reducing their own operating costs.
Deloitte’s Practical Guide to Adopting VAM
Before implementing virtual accounts, a four-pronged strategy to manage variables and expectations for a very powerful tool:
- Carefully assess your goals before you start
- Determine the optimal configuration for virtual account structures
- Likewise, the organization’s virtual account identifier must be appropriate
- Discuss integration into TMS / ERP (cash management systems and enterprise resource planning)
Vipul Pal adds, “Banks need to understand the implications of all aspects of a VAM environment as part of their implementation roadmap and how VAM can improve their product offering in the market. For example, banks that are simply looking to use VAM to simplify their internal cash reconciliation operations should also consider expanding VAM as a new product / service offering to customers in order to attract larger deposit balances.
Vipul Pal on the transformative impact of VAM
“While VAM has been around for a number of years and is adopted in the banking industry, the wider application of virtual accounts in global banks could allow purchasing companies to better manage cash positions in a global bank. multi-bank environment. It could also improve transparency and controls over customer segregated cash and expand the capabilities of capital market functions such as collateral management. “