Leveraging Virtual Account Numbers To Reduce Compliance Requirements

Working with international clients can enhance profitability and global visibility. However, it also brings about challenges such as cross-border payment complexities, export documentation, and tax compliance. To address these hurdles, financial institutions and payment platforms offer virtual accounts and generate unique vIBANs (virtual international bank account numbers) for each international transaction.

In this blog, we delve into the concept of international virtual accounts and explore how virtual account numbers streamline compliance management.

What is a Virtual Account?

A virtual account is an electronic account that does not have a physical presence. They are typically used for specific purposes, such as online transactions, corporate banking, and cash management. 

A virtual account number is an 18-digit unique number linked with each virtual account to avoid sharing the account number associated with the real bank account. VANs are used while executing online transactions to ensure that the real bank account is not shared with the other party. 

You can consider virtual accounts as passthrough accounts that assist in clearing transactions to the real account rather than holding any balance. Banks, payment platforms, and other financial institutions provide virtual account numbers to customers for quick transaction processing and better reconciliation. 

Even though virtual accounts transact on behalf of traditional bank accounts, they offer unique features and benefits. For example, opening numerous virtual accounts is easier and quicker in comparison to opening traditional bank accounts which requires extensive documentation. 

Furthermore, virtual accounts are cost-effective, easy to manage, and flexible compared to traditional bank accounts. They allow businesses to separate cash flows from multiple payers within the account. 

How Do vIBANs Work?

If you want to receive international remittance in USD from a foreign entity, your international payment platform generates a vIBAN. You can quote this vIBAN to the sender to receive the payment. 

vIBANs help businesses comply with regulatory requirements, such as the Payment Card Industry Data Security Standard (PCI DSS), by reducing the storage and transmission of sensitive cardholder data. Furthermore, in case of disputes or fraudulent charges, VANs and vIBANs provide a clear trail of transactions, making it easier for customers to identify and dispute unauthorised transactions with their card issuer.

Types of Virtual Accounts

In India, financial institutions and payment platforms offer two types of virtual accounts. 

Domestic Virtual Accounts 

These virtual accounts are linked to a real bank account established for sending and receiving payments in INR within India. Similar to how each domestic bank account has a unique account number, domestic virtual accounts are assigned randomly generated virtual account numbers (VANs).

These accounts are commonly used for various tasks such as corporate banking, payment processing, cash management, and receivables management within the domestic market.

International Virtual Accounts 

International virtual accounts are created to execute cross-border transactions in foreign currencies. These virtual accounts are associated with international bank accounts and are assigned  randomly generated vIBANs. 

In India, only a handful of financial institutions and payment platforms offer international virtual accounts separately, allowing businesses to manage funds and conduct transactions globally. 

International virtual accounts often support multi-currency functionalities, enabling businesses to send and receive payments in various currencies without the need for multiple physical bank accounts in different countr

Advantages of International Virtual Accounts

Here are the advantages of international virtual accounts.

Enhanced Security 

Cross-border transactions involve a high risk of financial fraud and data breach. Virtual accounts mitigate this risk by offering advanced security measures such as multi-factor authentication, encryption, and fraud detection systems.

International virtual accounts create different and temporary VANs for every transaction, separate from the customer's actual card number. Hence, even if a VAN is compromised, it cannot be used for additional transactions beyond the specified purpose. vIBANs also reduce the risk of sensitive information exposure in case of data breaches.

Reduced Compliance Burden 

International virtual accounts can reduce compliance burdens associated with cross-border transactions by automatically generating FIRA certificates for each transaction. 

Simplified Account Management

By opening an international virtual bank account, businesses can receive payments in multiple currencies and through different modes such as SWIFT or bank transfer. 

Virtual accounts allow seamless payment conciliation and account monitoring from a single platform or dashboard by creating a unique VAN for each transaction.

Cost Efficiency and Reduced Transaction Fees 

By consolidating international banking activities through virtual platforms, international virtual accounts reduce transaction fees associated with traditional cross-border banking services, such as wire transfers and foreign exchange transactions. 

Many payment platforms charge high fees for cross-border transactions. With an international virtual account, businesses pay a fixed rate for each cross-border transaction instead of paying a small percentage of the transaction amount every time.

Moreover, international virtual accounts often provide competitive exchange rates and lower overhead costs compared to traditional banking services, resulting in overall cost savings for businesses engaged in global commerce.

Choosing the Right Platform for Your Needs

With multiple payment platforms available in the market, it can be difficult to choose the right one. Here are some factors to consider while choosing an ideal payment platform to open an international virtual account: 

Identify Your Business Needs 

Begin by clearly defining your business requirements, such as the currencies you need to transact in, the volume and frequency of transactions, and the level of security and compliance needed. Analyse and compare various payment platforms and narrow down the ones that fulfil your business needs. 

Evaluate Security Measures

Look for platforms that offer robust security measures such as encryption, multi-factor authentication, fraud detection, and compliance with industry standards and regulations such as PCI DSS and GDPR.

Consider User Experience and Interface

Evaluate the user experience and interface of the virtual account platform to ensure it is intuitive, user-friendly, and easy to navigate.

vIBAN Option

Most financial institutions in India offer domestic virtual accounts with VANs. However, for cross-border transactions, choose payment platforms offering international virtual accounts with a vIBAN facility, such as Skydo. 

How Can A Business Benefit From Setting Up an International Virtual Account? 

International virtual accounts can help businesses streamline their cross-border transactions. Let’s consider the example of LookUp Education, an ed-tech firm that offers online educational courses to students residing abroad. Instead of setting up different international bank accounts in multiple countries, LookUp opens virtual bank accounts to receive payments easily. Here is how setting up an international virtual account benefits the business.

Now, instead of converting the amount to INR and holding it in its domestic bank account, LookUp can pay its foreign vendors or refund fees to students from its international virtual bank account. This reduces transaction costs and conversion fees and optimises cash flow, resulting in overall cost efficiency. LookUp Education can also comply with regulatory requirements related to cross-border transactions, financial reporting, and data privacy.

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Documentation Required For Creating An International Virtual Account 

Here are the documents you will require to complete your KYC and open an international virtual account while following the above steps.

Conclusion

You can open an international virtual bank account within 5 minutes and get vIBAN quickly with Skydo, a modern cross-border payment platform. It offers transparent pricing, built-in invoicing, zero maintenance charges and full compliance with GST and automates FIRA/FIRC receipt generation.  

All you have to do is visit Skydo today and sign up for an international virtual account for streamlined cross-border transactions.