Virtual Accounts, Virtual IBANs, and their transformative potential

What is an International Bank Account Number (IBAN)?

All accounts, regardless of whether you live in North America or Europe, have a unique number that enables banks to deposit and withdraw money without error. Take a quick look at the bottom of a check to see a very long, numeric code. In North America, your code is a combination of a transit number, an institution number and a bank account number (Canada and the US use slightly different codes). When used in combination, these numbers create a unique identifier. In Europe, the equivalent is called an International Bank Account Number, or IBAN, which is an internationally standardized method of recognizing account numbers during a bank transfer.

What is a Virtual Account or Virtual IBAN?

A virtual account and a virtual IBAN are the same tool under different names. You may have also seen them referred to as a virtual reference number or VRN. Traditionally, very large businesses employ hundreds, sometimes thousands of bank accounts around the world for all kinds of purposes. Some accounts are used to manage foreign currencies, liquidity, payables, receivables, and even payroll. A business like Walmart or General Electric could have 4000+ bank accounts! This is not only a very expensive practice, but in today’s digital age, a very inefficient practice as well.

A virtual account, or virtual IBAN is a phantom account number that uses the same numbering standard as a traditional bank account, enabling incoming payments to be rerouted to the physical account of choice. This allows businesses to reduce the number of physical accounts they employ, saving them the significant time and cost of setting up and maintaining physical accounts. From a payer’s perspective, nothing has changed, and it appears as though the virtual account is in fact, a physical account. However, from the business’ perspective, there could be dozens of virtual accounts (Virtual IBANs) funneling into one physical account, enabling a level of simplicity, efficiency, tracking, and control that physical accounts do not.

The benefits of virtual accounts and Virtual IBANs

There are a number of other significant benefits to using virtual accounts, including:

• Reducing the time and cost of reconciling payments
• Flexibly organizing account structure by vendor, region, or currency
• Improving straight-through reconciliation and cash flow
• Decreasing operational complexity
• Centralizing transaction management, improving visibility

The future of virtual accounts and Virtual IBANs

While virtual accounts were originally introduced as a simple tool that improves the payables and receivables process, nanopay has applied virtual accounts to the more complex practice of cash and liquidity management. Banks and their global corporate clients use cumbersome tactics to manage their internal liquidity, which includes employing dozens, or even hundreds of bank accounts. Virtual Account Management (VAM) solutions, such as nanopay’s Liquid enable both the banks and their business clients to leverage virtual accounts for a more efficient liquidity management practice. Timing is essential, as liquidity is often used to pay off debt or invest in strategic opportunities, yet most banks and businesses are reliant on outdated technology (sometimes using nothing more than Microsoft Excel) to manage billions of dollars. VAM solutions provide clients with a platform to manage their virtual accounts, and thus, their global liquidity, improving visibility and efficiency, while reducing costs. Some VAM solutions are even self-service, with additional functionality, such as intercompany loan management, and FX risk management.

We at nanopay believe that cash and liquidity management should be a real-time process, but legacy banking infrastructure and a lack of innovation in the space have left treasurers and accounting professionals making decisions using delayed information, and sometimes, just a best guess. Virtual accounts/Virtual IBANs in combination with other technologies can help propel the industry into the 21st Century, improving a function that has seen relatively few improvements for more than two decades! If you’d like to learn more about virtual accounts or the work that nanopay is doing, please feel free to reach out at nanopay.net.