Virtual Bank Accounts: Your Gateway to Easy Global Transfer
The global trade business is more interconnected than ever. Technological advancements have made it possible to connect with buyers globally and track logistics in real-time.
However, receiving cross-border payments through the traditional banking system still remains a cumbersome and expensive process thanks to lengthy processing times, hidden charges, and tax compliance issues. This is where virtual accounts step in, offering an innovative alternative to physical bank accounts. It eliminates the above challenges and simplifies cross-border payments for exporters.
What exactly are virtual bank accounts? How do you even open a virtual account? We answer these questions and a lot more in this blog.
What Is a Virtual Bank Account?
Virtual bank accounts are digital accounts linked to your physical bank account. Each virtual bank account has a unique 18-digit number you can share with your international clients to receive payments. However, virtual bank accounts have one notable difference from physical bank accounts. The difference is they cannot actually hold money, they are like digital delivery agents receiving payments and delivering them to your bank account.
Virtual accounts add two major advantages for exporters:
More Privacy
By sharing your virtual unique account number, you don't have to reveal your bank account details. Keeping bank details private reduces the threat from security breaches.
Better Fund Management
When you work with multiple clients across multiple regions and countries, you can open different virtual bank accounts in each such country and consequently receive payments in different currencies each assigned to a different client. This way you can keep track of every client's payment history more efficiently.
How Do Virtual Bank Accounts Work?
Before we get to the working of virtual accounts, here's something you must know. Virtual accounts can be created for both domestic and international transactions. In the case of domestic transactions, each account has a unique virtual account number that can receive payments only in Indian Rupee (INR). However, the real utility of virtual bank accounts lies in international transactions. Let's understand this with the help of an example.
Imagine you're an exporter receiving payments from multiple international clients. You can share your physical bank account number with them, but it has challenges for them and you. For starters, your clients might be sceptical about making payments to a foreign bank account because of security issues like financial fraud or data breaches. For you, it's an expensive option because various charges are deducted from the amount before finally crediting it to your traditional bank account.
We have listed down the different charges that are typically deducted to help you understand better:
SWIFT Fees: This ranges from Rs. 500 to Rs.1000 depending on the bank. Now while SWIFT fee is levied on the sender, more often than not, it will be passed on to the receiver.
Currency Conversion Markup: Banks charge a forex markup on the current exchange rate. For example, if the current USD to INR exchange rate is Rs. 85, the bank might deduct a markup of Rs.2 on every dollar. So when a client sends USD 10,000, the real exchange value is Rs. 850,000, but the bank will credit Rs. 830,000 after deducting the markup.
Foreign Inward Remittance Advice (FIRA) fees: After the amount gets credited, you must also pay the bank to obtain FIRA as proof that you have received an international payment.
Should you open multiple foreign bank accounts then?
Opening bank accounts where your clients are based is a valid option to bypass these charges. However, that's also an expensive process because you must pay maintenance fees for each account. Moreover, you have to face numerous regulatory hurdles.
A virtual account works as a win-win solution here. You can open virtual international bank accounts in your client's country without your presence and extensive paperwork.
For example, you open a new virtual account in the US for your American clients. They can transfer the payments in US Dollars like a local transfer therefore there are no SWIFT fees involved. Once the amount is received in your virtual account, it’s consolidated first, then converted into a currency of your choice – which is INR in most cases for Indian exporters – and deposited into your bank account. You can open virtual accounts in the same manner for different customers based out of countries like the UK, Singapore and more.
How to Open a Virtual Bank Account?
Opening a virtual bank account is much simpler and takes less time compared to opening a traditional bank account. The process is streamlined and requires less documentation. In India, platforms like Skydo and Wise Business offer international virtual multicurrency accounts to manage receivables from different countries.
Here's how the 5-minute onboarding process at Skydo looks like:
- Share your contract with an international client or a paid invoice (not earlier than 3 months) to prove you have an international client
- Collect documents including PAN Card, Importer Exporter Code (IEC), Director's Aadhar number and Email address, and bank account details for video KYC verification
- Verify the email address
- The next step is KYC verification. A window will open up with all the instructions on which documents must be uploaded to open the account
- An OTP will be sent to the registered Aadhar number
- In the last step, your bank account is verified with penny testing where a small amount is credited to your main account
What Documents Are Required to Open a Virtual Bank Account?
Here are the list of documents you must keep in handy to open a virtual bank account:
Client Contract: A copy of the contract with an international client
Last 3 Months Bank Statements: This necessary information is required to prove the transaction history between you and the client
Importer Exporter Code (IEC): The Importer Exporter Code (IEC) is a unique 10-digit code for businesses and individuals engaged in the import and export of goods and services
Sales and Income Tax Returns: You must share the income tax filing details with acknowledgement to prove that you have no unpaid taxes
Business PAN Number: To verify the business' identity
Director's Aadhar Number: The Director's Aadhar Card must be shared while signing up as identity proof. The mobile number linked with this Aadhar Card will receive the OTP for verification
Director's PAN Card With Picture: This is required to cross-check the name and other identity details on the UIDAI website
Director Email Address: This will be used for communication
Business Bank Account Details: This is the primary account that will be linked with the virtual account to receive payments
What Are the Benefits of Virtual Bank Accounts?
Here are the top three benefits of virtual bank accounts:
Fast Settlement: Virtual bank accounts are much faster than financial institutions like banks while settling transactions. In the traditional banking payment method, the processing time is long due to multiple participating banks, sometimes SWIFT transfer can take upto seven days to settle. Virtual account platforms like Skydo, transfer funds to your bank account within one day. As an exporter, this means better cash flow and more liquidity.
Cost-effective: With virtual bank accounts, you get most of the amount your client sends. Charges like SWIFT fees are not levied, plus, unlike banks, platforms like Skydo also offer you live forex rate, helping you keep the most of what you make.
Secure: Threats like data breaches and financial fraud always loom over traditional methods of international payments. In comparison, virtual accounts have enhanced security features like multi-factor authentication, encryption, easy tracking ability, and a real-time fraud monitoring system. Even if your virtual account number gets disclosed, it cannot be used to gain access to your physical bank account.
Receive Seamless International Payments with Virtual Bank Accounts Powered by Skydo
Skydo is one of the most popular platforms for receiving international payments in India. It offers you international virtual accounts in key regions like the US, Europe, UK, Australia, Singapore and more. The pricing is upfront, there are no hidden charges, and you can get started in 5-minutes.
Skydo’s biggest advantage is live foreign exchange meaning there are no margins. Payments are credited to your bank account at the exact live exchange rate. There is a flat fee of USD 19 for transactions below USD 2,000 and USD 29 for transactions between USD 2,001- USD 10,000. For transactions above USD 10,000 a fee of of 0.3% is levied.
Other than this, you don’t have to pay extra charges or documentation fees.
Skydo also helps you get paid on time by offering customizable invoice templates and payment reminder feature. It also generates GST-compliant FIRA for each international transaction automatically at no additional cost.
Head over to the Skydo website to get started for free.
How Long Does It Take to Receive Payments in a Virtual Bank Account?
Ans: The time taken to receive payments in a virtual bank account depends on the payment method and the platform. Typically, local transfers and processed instantly or on the same day. In the case of an international wire transfer, it can take 2 to 5 business days.
What Documents Do I Need to Open a Virtual Bank Account?
Are Virtual Bank Accounts Suitable for Freelancers?
Are There Any Fees Associated with Using a Virtual Bank Account?
Is It Safe to Use Virtual Accounts?
