Treasury Today Country Profiles in association with Citi

Bank-independent treasury? It is possible!

Person in a cafe on laptop and mobile

Virtual accounts are offered by many banks but may lock the user into that relationship. There may be a new way to enjoy the benefits of this technology and enable bank independence.

Banks love to lock in corporate clients, and for obvious reasons. Many provide highly beneficial technologies that make that tied relationship worthwhile. However, being tied is a risk. It also increases the difficulty for clients to explore other options.

For some time, the treasury of Nordic tech giant, Tieto, has run a payment factory using its ERP system. But in recent times, says Ilkka Korkiakoski, its VP Transaction Banking, treasury has been asking how this set-up can be progressed to a higher level. In particular, he says it wanted to consolidate bank accounts and achieve better in-house banking functionality and a degree of “bank independence”.

Direct integration

Treasury, working alongside the firm’s CIO function, (which has responsibility for the ERP), has explored the idea of integrating a specific version of Tieto’s virtual account management (VAM) platform (called Treasury Corporate Bank or TCB) directly into treasury.

Normally the VAM platform is offered to Tieto’s banking clients, as a white label solution for their own corporate customers. But with treasury adopting the TCB solution, it would be able to consolidate its own bank accounts and create virtual accounting functionality to retrieve all the information it needs from its banks to execute and record all its usual in-house banking activities.

The VAM/TCB solution allows a much smaller number of physical accounts to rest with the panel of banks. By creating a ‘shadow’ master account within treasury, and building a hierarchy of virtual accounts around its business units and subsidiaries, treasury is able to manage them all centrally. The benefits of virtual accounts inside treasury, says Korkiakoski, include easier automated reconciliations and better visibility, control and reporting across multiple banks.

With virtual accounts now sitting inside treasury, all activity can be integrated within the company’s ERP and TMS systems. All external positions can be booked here; all internal positions (such as inter-company lending and margins) are booked on the VAM/TCB side. “It means treasury is not dependent on one bank’s solution but actually can integrate more easily with banks, who have the virtual account management solution,” explains Korkiakoski.

Wider adoption

The concept of implementing a ‘bank independent’ VAM/TCB solution within treasury’s own in-house banking structure is currently in implementation design phase in Tieto’s treasury. However, another Nordic company, DNV GL (with operations in more than 100 countries), has been live for some years.

Companies, like Tieto and DNV GL, that have many subsidiaries and use multiple currencies, are burdened by FX costs, low automation and non-optimal banking structures. This inefficiency is driving a clear business case for deploying the VAM/TCB system, says Korkiakoski.

This success presents something of a quandary for Tieto. Although the VAM technology it has developed is primarily for bank clients, Korkiakoski says it is “sufficiently versatile” for Tieto to consider offering a streamlined version directly to other corporates.

It could promote VAM on the bank side, and TCB on the corporate side, offering advantages to both. It is also assessing the possibility of partnering with TMS or ERP providers, potentially enabling ‘real-time treasury’ by adding additional layers on top of their existing VAM and in-house banking functionality.

But the challenge, Korkiakoski admits, is that Tieto then becomes a competitor to the banks which make up the bulk of its regular financial sector business.

Many of these now offer virtual account products; enabling ‘bank independence’ is unlikely to be part of their strategy. That said, he believes that some “forward-looking banks” will take the view that they could be a channel partner, promoting an integrated bank-to-corporate VAM solution that delivers what their corporate clients want without locking them in. Tieto and DNV GL have proved that it is certainly now possible.