By Sam Shaqareq, Principal Solution Marketer, Oracle Financial Services, in conversation with Jeffrey Edison, Global Solutions Lead, Oracle Financial Services
The banking industry demonstrates its resilience time and time again, and a strong commitment to innovation is an integral part of this equation for leading institutions across the globe. But how can banks embrace innovation strategically in a space crowded with the latest buzzwords?
I’d like to introduce the first in a series of blogs, “Decoding the Buzz.” In this series, I’ll be speaking with Oracle Financial Services thought leaders about where they’re finding tech innovation in the industry, how it’s shaping Corporate Banking, and more importantly how banks could leverage it to drive enriched service offerings to their corporate customers.
On that note, let’s dive right in and cut through the clutter with a technology that’s been around, but has evolved significantly in terms of its uses – Virtual Account Management.
VAM BAM! One Idea that’s solving multiple problems
Ask a room of corporate bankers, “What is Virtual Account Management (VAM)?” and you’re likely to get many different answers. And that is a good thing.
VAM has the potential—with the right technology foundation—to be infinitely flexible with new business use cases imagined daily. It can deliver tremendous value to both corporates and their banking partners. Corporates stand to reduce cost and complexity, introduce new levels of automation, improve customer relationships, and streamline compliance. Banks, in turn, can strengthen vital relationships by elevating their service to address their corporate customers’ growing pains while reducing their own operational costs. VAM is transforming treasury—and the journey is just beginning.
Join me as I speak with Jeffrey Edison, Global Solutions Lead at Oracle Financial Services on the evolution of VAM and the wide array of use cases it enables today.
Sam Shaqareq: There are a lot of different perceptions about VAM and what it is. How do you define VAM?
Jeffrey Edison: Banks have offered "virtual account" solutions for many years, but most of these offerings were for specific purposes and targeted customer segments. We have adopted a more holistic approach with VAM to encompass numerous business propositions and use case scenarios. VAM should be solving for the challenges faced by both corporates and banks in driving better cash management efficiency.
For Oracle, VAM is about the challenges faced by both corporates and banks for cash management efficiency. It goes well beyond virtual IBANs or virtual reference numbers and offers more than just efficient receivables management. VAM encompasses payables and receivables, including On Behalf Of capabilities, corporate In-House Banking, and management of client funds.
SS: What types of organizations can benefit the most from VAM?
JE: Historically, VAM has been a solution for large corporates who have complex structures of physical bank accounts spread across the globe. With growing globalization, organizations that can benefit from VAM are now defined not by their size but by complexity and business breadth. This might include an organization dealing with payments and collections in various currencies or managing funds for new-economy platforms for gig workers and service providers.
SS: What are you seeing in terms of the types of VAM use cases that banks are offering their corporate customers today?
JE: Currently, many banks support a limited set of VAM business propositions. Meanwhile, their customers are still facing increased challenges, leaving banks with a gap in unmet needs. One bank that we are working with has been supporting client money management for many years. It has outgrown the capabilities of its legacy solution. It is using the renewal opportunity to expand its services to address multiple virtual account propositions. Another bank is looking at offering services across the geographic region and currencies in which they operate, beyond the local, single-currency cash pooling services that they currently provide. Others are looking to use VAM capabilities to support digital wallets, e-commerce, and the gig economy. Nearly every discussion today seems to create new thinking about what business propositions a bank can address with VAM.
SS: So, how is VAM continuing to evolve?
JE: Banks have started to realize that the traditional VAM techniques of virtual IBANs and virtual reference numbers only address a small portion of corporate challenges. The second generation of VAM solutions typically addressed additional business propositions for payables and receivables management, in-house banking, and client money management with self-service capabilities. Beyond this, Oracle Banking’s next-generation VAM solution allows the combination of traditional liquidity management techniques with virtual accounts. This will enable corporates to build off physical sweeping (including relationships across multiple banks) with real-time cash concentration (via virtual accounts) into hybrid physical and virtual structures. The next step in the evolution is predictive cash flow forecasting based on accounts receivable and accounts payable, using artificial intelligence and machine learning.
SS: Technology adoption can be daunting sometimes. What types of hurdles are banks encountering when developing VAM offerings?
JE: One of the significant hurdles is to carefully identify the precise customer segment challenges and what is needed to deliver real value to the corporate customer. This, rather than simply introducing a new solution is crucial. Our approach is a phased, minimum viable product (MVP) so that customers can see tangible benefits with rapid time-to-market.
Another challenge is adapting the mindset of banks toward a more client-focused, self-service approach. As with any financial services project, the integration of a new solution is always a challenge. VAM interacts with many areas of the bank. Therefore, it requires many touchpoints with the bank’s systems. Finally, some banks struggle to identify the business case related to developing a VAM offering. It’s not easy for some banks to quantify the benefits for them and their corporate customers around specific VAM applications.
SS: Given today’s unfolding landscape, Corporates face mounting pressures on the need for capital and managing it more efficiently. What are your predictions for VAM's adoption in this new environment?
JE: Traditionally, banks have offered cash management solutions for corporates to optimize their working capital and liquidity needs; these offerings used conventional cash pooling techniques. However, banks are moving away from notional pooling due to regulations and the rising costs of this business. At the same time, corporates are looking for greater insight and control, as well as lower costs through alternative solutions. Virtual accounts fit perfectly with these drivers, providing banks and corporates with greater operational efficiency. Corporates require real-time clarity of their working capital and the self-service control for efficiency and speed.
SS: What unique value does Oracle deliver when it comes to helping banks enable and evolve virtual account management?
JE: First, Oracle Banking Virtual Account Management supports multiple business cases in a single platform, including self-service client components. By doing so, it offers enormous flexibility to address the requirements of both the bank and its corporate customers. Oracle's modern, componentized solution allows banks to choose the components that address their precise needs. This combines both tactical options for faster time-to-market and strategic options for the longer term.
For corporates, the solution’s flexibility allows banks to quickly provide targeted applications addressing specific client segments and evolving corporate needs through configuration rather than additional development. In addition, Oracle applies powerful artificial intelligence and machine learning capabilities for business insights and predictive cash flow forecasting.
All Oracle Banking solutions are built on modern architecture and are designed for easy integration into a bank’s environment. This eases one of the main hurdles that we have identified when banks are developing VAM offerings. In addition, Oracle’s VAM solution is system agnostic; it can integrate with any core banking and payment systems that are used at the bank. Oracle provides banks with an agile, future-proof solution that meets performance and time-to-value while strengthening their corporate offering through increased flexibility. Building a proper value proposition for your VAM offering is one key to success.
To learn more, feel free to message me to explore more, or have a conversation.
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