FinnAxia VAM offers excellent opportunity for banks to increase their revenues: Harshit Jain

Nucleus Software recently launched FinnAxia 7.0, thereby, introducing a virtual account management (VAM) for real-time banking. Here, Harshit H. Jain, SVP and Global Head, Transaction Banking and Digitization Business, Nucleus Software, tells us more. Excerpts:

DQ: What are the capabilities of FinnAxia 7.0?

Harshit H. Jain: The latest version of Nucleus Software’s comprehensive transaction banking solution – FinnAxia 7.0 introduces sophisticated virtual account management (VAM) capabilities that help banks open virtual accounts for their corporate customers.

These virtual accounts can be used to replace a number real/physical current accounts – which reduces cost and complexity – while also providing a way to instantly route payments and collections – hence improving customer experiences and streamlining reconciliation.

The solution allows corporates to consolidate complex cash operations across banks and regions to improve both cash flow visibility and forecasting capabilities. It also helps to improve efficiencies, reduce the costs associated with account transactions and improve the quality of accounts receivable reconciliation and streamline the payee identification process.

With FinnAxia VAM, banks can centralize cash operations for their corporate customers, thereby, providing real-time visibility and better control of liquidity positions, along with improving forecasting capabilities for faster and more informed decision making.

DQ: Aren't there other solutions too? How is this better?

Harshit H. Jain: While virtual accounts themselves are not a new concept, until recently, they have been mostly used for payer identification – where, payers are allocated their own individual virtual account number to pay into. I believe, FinnAxia VAM offers an excellent opportunity for banks to increase their revenues, and improve customer centricity by helping corporates solve today’s cash and liquidity management challenges.

The solution helps in the real time centralization of cash by either replacing or augmenting traditional liquidity management tools such as cash concentration and notional pooling. It also enables banks to provide their customers with easy to use self-service options which ensures faster deployment and delivers more convenient control of the virtual accounts.

Corporates can open and manage their own virtual accounts. They can design complex shadow account hierarchies for a real physical account in line with its business needs. With the clients remaining fully in control of maintaining the account hierarchies, they can choose to open virtual accounts for each business unit, for each client, or for incoming and outgoing transactions – and also at different levels for all of these purposes.

FinnAxia VAM helps banks to increase their addressable market, for example banks can create client money accounts for professional firms, such as insurance companies or for mutual funds that need to hold customer deposits in a segregated manner.

Rather than funds being aggregated in a pooled client account, with all the attendant bookkeeping overhead, virtual accounts can be opened virtually immediately for new clients and then closed again when they are no longer needed.

DQ: Virtual accounts pose challenges vs. real accounts. How will this be managed ?

Harshit H. Jain: While virtual accounts will reduce the number of real/physical accounts, they will not completely eliminate them. Indeed, virtual accounts offer the same benefits as real bank accounts including the ability to accrue and manage interest, initiate payments and manage receipts, but without the disadvantages – for example cost.

Virtual accounts will work in conjunction with real/physical accounts to help corporates achieve real-time cash consolidation. Without virtual accounts, corporates need to maintain countless physical bank accounts, which makes it difficult to get a single, accurate and timely view of cash visibility and hence inhibit control.

When corporates use physical accounts, the information reporting and accounting challenge is made much more difficult as information has to be pulled from each one of the physical accounts. While the KYC & KYCC checks carried out for virtual accounts are the same as that of a physical account, FinnAxia VAM helps banks on-board customers faster with a number of features including an AI-based intelligent text extractor.

The use of virtual accounts enables corporates to reduce the number of physical accounts shrinking the administrative workload, cutting complexity and lowering the costs associated with holding additional physical accounts. Reducing the number of physical accounts also helps to streamline the corporate accounts receivable process, ensuring faster payee identification, error-free reconciliation, reducing days sales outstanding (DSO) and improving working capital management.

With on-behalf-of structures such as POBO (Payments On Behalf Of) and ROBO (Receivables On Behalf Of), organizations can dramatically reduce the complexity of their banking structures. Those structures often comprise thousands of accounts across hundreds of banks and involve a wide range of currencies.

With VAM, they can be consolidated into a single physical account in a single bank, which reduces cost but more importantly provides greater visibility of cash positions and faster, more informed decisions.

Fewer physical accounts, combined with centrally managed entitlements and limits, reduce the risk of fraud by reducing the number of entry points for fraudsters while simplifying the monitoring process. If a virtual account is compromised, it can be closed quickly and replaced, ensuring that the underlying physical account remains secure.

DQ: How can banks provide a range of self-service options to the corporates?

Harshit H. Jain: The entire FinnAxia solution is designed to put power in the hands of people who need it. FinnAxia VAM empowers corporates by allowing them to configure, monitor and manage their own virtual account structures, tailored to their business needs.

Individual organizations have different requirements; even two companies that are operating in the same industry may have different needs. Some companies may wish to assign virtual accounts by product line, whereas others may want to group virtual accounts by business entity.

With FinnAxia Virtual Account Management, treasurers can open and administer virtual accounts by themselves – they can design shadow account hierarchies, and they can do all of it in real-time, which gives them a far greater degree of control and flexibility.

DQ: Designing complex shadow account hierarchies for a real physical account, poses problems. How will customers overcome those?

Harshit H. Jain: Using virtual accounts, clients could run their entire operations with just one physical bank account, allowing them to transform their approach to cash and liquidity management. This approach will simplify reconciliation and improve working capital management, while lowering costs since there would hardly be any labour intensive account opening or closing activities.

The shadow account hierarchies can be as complex or simple as the corporates want them to be. To ensure ease of use and faster operations, the self-service option gives corporates total control of creating and maintaining these account hierarchies. They can choose to open virtual accounts per business unit, per customer, or per geography, and they can choose to do so at different levels.

For instance, instead of providing customers with a generic physical account number to make their payments, corporates can provide customer-specific virtual account numbers – allowing them to identify individual customer remittances and reconcile in real-time.

Since corporates can now open and use virtual accounts to segregate business units/ entities without any hassle, this degree of granularity can be extended down to the smallest players in the corporate ecosystem ensuring better credit line management and improved decision making.

DQ How can it improve compliance to regulations such as BASEL III?

Harshit H. Jain: Virtual accounts enable corporates to both efficiently manage their cash management structures and improve their compliance with industry regulation. A recent PWC paper predicted that SEPA will effect a reduction of up to 9 million bank accounts.

With FinnAxia VAM, banks can ensure cash Centralization for their corporate customers, hence reducing the required number of physical accounts. Under the Basel III rules, banks would be unable to compute their liquidity ratios by netting outstanding account balances of accounts (e.g. in notional pools).

The regulation requires banks to account for negative notional account balances as liabilities in Basel III ratio calculations, thus increasing the cost for banks to offer notional pools as a service. The stricter liquidity requirements are having an impact on businesses that are now looking for alternative methods to gain an insight into their global financial position and to optimise interest revenue on their bank accounts.

With virtual accounts, netting is no longer necessary since all the funds are concentrated on one account. FinnAxia Virtual Account Management thus offers a convenient alternative for corporates – offering them a cheaper way to manage their cash management structures, and at the same time providing banks with the flexibility to meet the evolving regulatory requirements.