finstudofficial posted: " Are you tired of reconciling your bank statements? If yes, then this astonishing technology of virtual accounts can save you from your troubles. They are your one-stop solution to cash management. Although they are similar to bank accounts, they offer en"
Are you tired of reconciling your bank statements? If yes, then this astonishing technology of virtual accounts can save you from your troubles. They are your one-stop solution to cash management. Although they are similar to bank accounts, they offer enormous benefits over physical bank accounts.
Want to know more about this revolutionary innovation? Here you go.
What are Virtual Accounts?
Prima facie, you may consider them as a bank account operating online. If you think so, you have been misled!
In reality, they are shadow accounts that offer the same benefits as a bank account. Sounds technical, right? In simple words, they are temporary bank accounts without any physical existence. The concept behind it is similar to creating a Virtual ID with the help of the Aadhaar Number. If you have used one, you will be able to relate.
How do they Work?
Generally, they work in 2 ways:
Virtual accounts created with Escrow Account: An escrow account is an account where funds are held with a third party with a consensus of the parties. Or you can consider them an extension of Paypal.
Here, the funds are retained with the third party till they are transferred to the payee. So, the duration is temporary. The parties have to approve the transactions to get the funds transferred. So, it ensures the authenticity of transactions.
The RBI has introduced Payment Aggregator Regulations, somewhat like payment gateways. The gateways, like Razorpay, have an escrow account and many virtual accounts.
Virtual accounts on top of a Bank Account: As the name suggests, a bank account is required to set a virtual account. The businessperson can identify the payer through the virtual account number. Its API also helps to get an overview of the transactions taking place.
Due to this feature, it has become popular among NBFCs. Just like other companies, they can track the payments made by the borrowers. It helps them to identify their non-performing assets (NPAs) and manage them.
The legal compliances are icing on the cake. Banks have to comply with various regulations. With the help of virtual accounts, they are a piece of cake.
Why Use Virtual Accounts?
If you understand the underlying concept, you will be able to answer the question. A virtual Account acts as a pass-through account to a real one. It offers the following benefits to the customers:
Tracking payments: A business undergoes a lot of transactions every day. The number increases manifold if it is an e-commerce business. Hence, it may become difficult to track the payments from the customers. The company has to reconcile the bank statements manually, which is a time-consuming process. That's where this innovation comes into the picture.
By allotting a unique virtual account number, it helps to track the payments made by customers. So, the reconciliation process becomes easy-peasy and error-free and solves the problem of manual reconciliation.
Accept payments via various modes: Just like a bank account, you can transfer funds in the virtual account through popular methods like IMPS, NEFT, RTGS. You can even pay through UPI. So, there's no need for a separate account to pay.
Wallet facilities: Virtual Accounts API helps you to develop a wallet facility for your customer, just like Paytm and Amazon Pay wallet. Here, they can send, receive and request money seamlessly till they transfer it to the bank account.
Mediator of transactions: All of the above benefits are just mind-blowing. But they don't end here. The API also helps to accrue the benefits of an escrow account. It gives security against scams and frauds.
Time-Saving: You might be aware of the hectic account opening process in a bank. But that is not the case with virtual accounts. You can open an account while enjoying yourself at home. Also, there is no need for KYC verification. All of this makes the process quite comfortable and efficient.
Improved Customer Experience: Imagine yourself to be a customer. What will be your reaction when a businessperson contacts you to verify the payments made? You will be frustrated, won't you? But virtual accounts solve this problem as well. So, customers won't get mad and have a great experience dealing with your business.
Pocket Friendly: You have to pay a commission to the payment gateways every time you avail of their services. That 1.5% may look insignificant, but it aggregates to a massive amount.
What if you don't have to pay for it anymore? Well, virtual accounts make it possible. The banks charge a fixed fee instead of the ad valorem commission. It helps to reduce the transaction costs significantly and acts as a pocket-friendly money manager of your company.
Virtual Accounts vs Physical Accounts: Which is Better?
If you have read till here, you know the answer already. Virtual Accounts are similar to physical accounts. But they have flexibility, security, and better features.
They enable the company to segregate the cash flows from different payers. Thus, eliminating the administrative workload and complexity.
What's more, it is a cost-friendly measure. It is so because companies had to maintain many bank accounts. It burnt a hole in the pockets of the owners. Now, they can manage the business effectively even with a single bank account. That is why they can save the banking costs.
Besides these facilities, it also helps in data analysis, as the data related to payments and receivables are segregated. So, the company can make data-driven and informed decisions. In short, the overall performance of the company improves.
Closing Words
If you consider the various benefits and the immense potential, virtual accounts may become the future of physical bank accounts. And why not! It helps a business focus on the core activities without worrying about problems like cash management and high transaction fees.
Even though the concept has been there for a long time, the adoption rate is pretty low. But the future is dynamic. So, you can't predict when it will become the talk of the town. In the meantime, you can switch to virtual accounts and exploit the first-mover advantage over your competitors.
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