Virtual accounts: the quick facts and need-to-knows

We recently published a three-part series (part 1, part 2, part 3) explaining everything you need to know about virtual bank accounts.

However, we decided to write this fourth bonus piece to summarise some of the highlights of virtual accounts.

Here's almost everything you need to know about virtual accounts, but we recommend you read all three of the previous articles for the full picture of virtual accounts.

What is a virtual bank account?

Virtual bank accounts, also known as virtual accounts or virtual International Bank Account Numbers (IBANs), are digital payment accounts that function in a similar way to traditional bank accounts.

And though they are often referred to as virtual 'bank' accounts, they aren't the direct digital equivalent of traditional accounts.

What can they do?

  • Send and receive funds.
  • Be allocated standard Bank Identification Code (BIC) and IBANs.
  • They are easy to open, close, and maintain.
  • Virtual accounts allow neobanks to give their customers full control and flexibility.
  • Easy recipient editing.

What can't they do?

  • Hold balances like traditional bank accounts.

The function of virtual bank accounts

Virtual accounts were designed to provide fintechs with several additional benefits, namely:

  • Virtual accounts reduce the number of bank accounts users need to maintain.
  • They simplify cash management and reconciliation.
  • They provide the same level of control and reporting as traditional accounts.

One of the biggest talking points around any deviation from traditional banking is that of security and protection. Virtual accounts differ from traditional accounts in several areas:

  • Nonbank Financial Institutions (NBFIs) offering virtual accounts do not have the same security as traditional accounts, but often have rigorous safeguard policies in place.
  • Virtual accounts generally do not have the ability to go into the negative, limiting their use for credit insurance.
  • Virtual accounts offer banks greater control over client liquidity and help them remain competitive, but traditional banks may be wary of using them due to compliance issues with regulations such as the Wire Transfer Regulations (WTR).

The future of virtual accounts and Fintech

It is clear that virtual accounts will continue to be used by businesses and remain a part of the commercial landscape, despite the current downsides.

  • Fintech companies can address potential anti-money laundering challenges and continue to innovate with virtual accounts.
  • All parties should work towards creating a more resilient network while preserving the integrity of the banking system, and SWIFT's migration to the MX format will allow for more data sharing and better assessments
  • Companies can choose to build or buy virtual account solutions, with buying being quicker and cheaper, especially for companies without experience building financial products. Existing solutions from providers such as CitiBank and ClearBank are also available in the collaborative Fintech ecosystem.

Integrated Finance offers a range of APIs as part of its fintech infrastructure, allowing fintechs and enterprises to focus more on differentiating their product offerings and choosing their own vendor and bank without worrying about multiple integrations.

Are you ready to launch your own virtual accounts? Chat with our team to find out how.

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