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Virtual Account Management is Transforming Businesses and Relationships … and The Future Looks Bright

Jeffrey Edison
Global Solutions Lead

Jeffrey highlights the wide array of opportunities with VAM and where banks and their corporate customers are heading.

 

Ask a roomful of corporate bankers “What is Virtual Account Management (VAM)?” and you’re likely to get a variety of responses. 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 and introduce new levels of automation through alignment of their banking accounts with their internal accounting systems. 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.

What good are virtual accounts?

Banks have offered "virtual account" solutions for many years, but most of these offerings were for specific purposes and targeted customer segments. Oracle has adopted a more holistic approach with VAM to encompass numerous business propositions and use case scenarios.

For Oracle, VAM is about the challenges faced by both corporates and banks for cash management efficiency. It goes well beyond the perceived standard of 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, real-time liquidity and management of client funds.

For whom are virtual accounts useful?

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.

VAM propositions

Currently, many banks address a limited set of VAM business propositions. Meanwhile customers’ challenges are mounting with banks struggling to keep up with an ever-increasing gap. 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 and 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 gives rise to new business propositions that can be addressed through VAM Solutions.

The evolution of VAM

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 with its support of receivables management. 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 allows 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.

Bank’s challenges with VAM

One of the greatest hurdles is to carefully identify the precise customer segment challenges and what is needed to deliver real value to the corporate customer - rather than simply introducing a new solution. 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. Building a proper value proposition for your VAM offering is one key to success.

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, many banks have moved 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.

Oracle’s unique advantage

First, Oracle Banking Virtual Account Management supports multiple business cases in a single platform, including client self-service 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 with both tactical options for faster time-to-market and strategic options for the longer term. For corporates, the solution’s flexibility allows banks to easily provide targeted business propositions and meet 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 a 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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For more information, please visit:
Oracle Banking Virtual Account Management: oracle.com/vam
Oracle Financial Services: oracle.com/financial-services

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