Virtual accounts are unique account numbers assigned within traditional, physical bank accounts, which are also known as settlement accounts. They can be used to send and receive money on behalf of the settlement account, where the funds are ultimately held. Businesses tend to create multiple virtual accounts, with each one designated to a specific client, transaction, entity, or any other business reason.
How do virtual accounts work?
Virtual accounts function similarly to standard bank accounts. They have their own account numbers, streamline incoming and outgoing transactions, and help users maintain their balances. The most notable difference is that virtual accounts cannot actually hold money. They receive it, collect necessary information about the sender, and pass it over to a primary account.
Your business bank account functions similarly to your primary email address. Virtual accounts are essentially the equivalent of email sub-aliases linked to your primary address. While sharing one inbox, you can create multiple email sub-aliases to differentiate your activity.
Let’s say that your primary email address is email@example.com. You want to sign up for different subscriptions but don’t want to directly use your primary email address. To remedy this issue, you create a list of separate sub-aliases for each subscription: firstname.lastname@example.org, email@example.com, and firstname.lastname@example.org. All of the emails will still accumulate in your main account, only now they can be sorted by the alias. A virtual account works similarly. It is a sub-alias of your primary account, allowing you to monitor and manage the lead, or source, of a payee in a single location: your main settlement account.
Why do I need a virtual account?
Many types of businesses, including neobanks and enterprises with complex funds flows, have many streams of cash all flowing into one large bank account and need the ability to attribute each cash flow to an individual user. Virtual accounts seamlessly help businesses track individual payments and automate the reconciliation process, which otherwise would be a time-consuming, manual process.
Manual reconciliation requires businesses to review every transaction and report the numbers by hand, which makes the process vulnerable to human error.
Virtual accounts, on the other hand, are fully-automated and function in real time. Therefore, they’re able to present the most accurate bank account balance. With no margin for error or unnecessary management, they’re streamlined and efficient.
Can virtual accounts hold balances?
Because virtual accounts are extensions of a physical, primary bank account, many of them cannot hold balances for themselves. It’s advantageous to pair them with a ledger, which is a book-keeping system that tracks all of your business transactions. When used with a virtual account, a ledger can further optimize balance tracking and monitoring for users. With virtual accounts powered by the features of a ledger, granting you access to every minor and major transaction, you can expect a painless, fully-digital banking experience.
Bank accounts are monetary repositories maintained by a financial institution
Subscribe to Journal updates
Discover product features and get primers on the payments industry.