Virtual Accounts and Virtual Wallets: A Complete Guide

If you’re reading this article, it’s likely because you’ve searched for information about virtual accounts or virtual wallets.  

Virtual Accounts and Virtual Wallets are used in business-to-business (B2B), business-to-consumer (B2C), peer-to-peer (P2P) payments, and every combination thereof. Yet, as your search has indicated, there is still a lack of understanding about virtual accounts and virtual wallets and how they differ in functionality and use cases.  

In this complete guide, you’ll discover what virtual accounts and virtual wallets are and how they differ. You’ll also discover why TransferMate’s integrated offering, “Global Accounts,” is used by the world's leading businesses to manage their international cash holdings more effectively.      

So, without any further ado, let’s begin to understand:

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What are Virtual Accounts?

Simply put, a virtual account is a digital payment method that emulates the purpose of a traditional bank account.

As the name would suggest, virtual accounts aren’t actual physical bank accounts, but they often have account details that can be used to make and receive key payment types or reference numbers that allow them to be linked and reconciled to a bank account.

Virtual accounts have several benefits, from facilitating local in country receivables and automatic reconciliation to meeting local compliance rules and providing smart bank statements for easier reporting.

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How do Virtual Accounts work?

Virtual Accounts create unique accounts for segregation of funds and currencies. In some cases, these act purely as a segregated wallet, in others each account may have unique addressable details for payments such as a Bank Identification Code (BIC), International Bank Account Number (IBAN) and local payment routing codes.

1. Creation of Virtual Accounts

A business or organization creates a master account with its bank, financial institution, or fintech partner.

That partner generates virtual accounts, often with a unique account number linked to the master account. These virtual accounts are not considered separate, traditional bank accounts but are used to segregate funds and as separate reference identifiers for multiple payments.

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2. Customer Payment Using a Virtual Account

The business gives its customers or vendors a virtual account number to receive payments. Payment options include invoicing using static payment details akin to a bank account, pay-by-link options where multiple payment methods are often available, or virtual account to virtual account (wallet to wallet) movements within the same payment platform.  

In the example of TransferMate’s Global Accounts, users who make pay-by-link transactions can also create their own accounts to pay and receive more easily worldwide in their chosen currency.

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3. Virtual Accounts for Automatic Reconciliation

Each payment through a virtual account carries information linked to the virtual account number. This information helps identify who made the payment, the purpose, and other related details.

This automatic tagging reduces manual reconciliation, as the system provides additional transparency on which payment corresponds to which customer or invoice.

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4. Reporting and Tracking with Virtual Accounts

Businesses can generate detailed reports on balances and transactions, as each virtual account gives visibility into payments, enabling efficient tracking of incoming funds, and resulting balances.

This simplifies the accounting and financial processes for businesses with high transaction volumes and those involving FX.

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5. Example Use Case

Imagine an online retail company that sells to thousands of customers daily. The company assigns each customer a virtual account number instead of giving them their main bank account number.  

When customers make payments using their designated virtual account number, the payment automatically flows into the company's master account. Still, the system knows precisely which customer paid and for which order, simplifying transaction reconciliation.

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Why do you need Virtual Accounts?

Virtual accounts offer several advantages for businesses and organizations that manage a high volume of transactions. Businesses can take advantage of virtual accounts to:

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1. Reconcile Payments Efficiently

Virtual accounts automatically match incoming payments to specific customers, invoices, or transactions. This eliminates manual reconciliation, reduces human error, and saves time.

Since each virtual account is uniquely assigned to a customer, there’s no ambiguity about the payer sending the payment.

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2. Streamline Complex Payment Systems

Virtual accounts can be used as an alternative to managing multiple bank accounts, in multiple currencies and with multiple banks in multiple jurisdictions. Having virtual accounts linked to a single multi-currency account structure significantly simplifies banking arrangements while maintaining detailed payment tracking.

With Global Accounts, this process is similar. Users can manage 30+ multi-currency accounts linked to a single platform. This set of virtual accounts means businesses can easily segregate funds and track customer payments across those accounts.

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3. Save on the costs of international payments

Instead of opening and maintaining multiple physical accounts (which takes a significant amount of time to set up and may incur higher banking fees), virtual accounts allow businesses to manage all transactions under a single account structure on one platform. This reduces the need for separate accounts with multiple different providers and associated costs.

Virtual accounts reduce the administrative burden and associated labor costs by automating much of the payment reconciliation process. This reduces soft costs to the business, and the admin time saved can be better spent on other areas of the company.

The Global Accounts solution further reduces these costs. Fee-free transactions and preferential foreign exchange rates reduces the hard costs of transacting globally.

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4. Enhance Customer Experiences

Clients are given unique virtual account numbers, simplifying the payment process for both parties. The customer makes the payment as they would to any other bank account, while the business benefits from streamlined tracking.

Since virtual accounts are unique, the chances of misdirected payments are reduced, resulting in fewer customer service issues related to payments.

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5. Scalability

Virtual accounts allow easy scaling of payment processing for businesses dealing with many customers or vendors (e.g., e-commerce platforms, utilities, or financial services). Companies can create as many virtual accounts as the provider supports without opening new bank accounts.

What’s more, once they’ve been onboarded with a virtual account provider, they can open new  accounts instantly wherever they need to.  

TransferMate’s Global Accounts solution allows businesses to build a banking presence in new regions faster and compliantly. By scaling this way, companies can start paying and receiving much quicker in those regions without taking on the burden of building that infrastructure from scratch.  

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6. Better Cash Flow Management

As each payment is tied to a specific virtual account, businesses can get real-time updates on costs and cash inflows, allowing them to manage cash flow more efficiently.

Accurate and timely payment tracking allows businesses to predict cash inflows better, aiding in financial planning and budgeting.

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7. Fraud Prevention and Security

As mentioned, virtual accounts make it easier to identify and track payments. This also reduces the risk of fraud or misappropriation of funds.  

Compliance checks are baked into the infrastructure of fintech providers that embrace modern technology. This ensures that every payment is queried with real-time checks against an international database. Choosing the right supplier for your virtual accounts with compliance technology is essential to consider.

With virtual accounts, businesses can create, monitor, and control their accounts internally, offering further security than traditional banking methods.  

Further to this point, choosing a heavily regulated provider ensures safety. In TransferMate’s case, as a fully licensed and accredited e-Money Institution or Payment Service Provider in all the jurisdictions we operate in, client funds are held in segregated safeguarded accounts and offer a high level of legal protection for client funds in storage or transit. With this license, your funds, and your clients’ funds, are safer.  

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Can Virtual Accounts Hold Value?

Many fintechs, including TransferMate, use virtual accounts to represent stored value where they are licensed to offer the service.

In the case of Global Accounts by TransferMate, the ability to hold funds and store value is offered and is the core function of the financial product.

While acting as a virtual account for automatic reconciliation purposes, Global Accounts also acts as a “virtual wallet” for businesses to manage global funds and, more effectively, disperse their B2B payments.

This functionality is offered in jurisdictions where it is regulatorily possible. For example, a user of Global Accounts based in the European Union, United Kingdom, or United States of America may hold funds in the supported currencies indefinitely thanks to TransferMate’s proprietary EMI and Money Service Business (MSB) licenses.

Whereas, licensing and currency restrictions in other jurisdictions are significantly more restrictive. A Global Accounts user in another region may only be allowed to store value for 24 or 48 hours due to local licensing rules.    

With TransferMate offering the largest, non-bank, licensed payments infrastructure in the world, Global Accounts users can leverage our licensing footprint to more flexibly manage stored value.

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What is Global Accounts by TransferMate?

Global Accounts by TransferMate combines the best of both “Virtual Accounts” and “Virtual Wallets” in a strictly B2B setting.

The product allows users to quickly and easily open accounts in 30+ currencies, where they can receive local payments, payout in over 140 currencies, store in, and convert (FX) between multiple currencies in a flexible way that suits them.  

In essence, this allows individual businesses of all sizes to build their own international banking and payment network. Users can manage all domestic and international payments in their dedicated and personalized global account(s), all on a single platform.

Users of Global Accounts can store and pay money locally without converting currencies multiple times. Fundamentally, this means that with Global Accounts, the amount billed always equals the amount received.  

For example, businesses can link Global Accounts to their e-commerce platforms and efficiently collect money in local currencies quickly and easily, with automatic reconciliation. Then, they manage that money between virtual wallets of those currencies, only exchanging funds back to their home currency when it makes sense.

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How can I use Global Accounts?

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At its core, Global Accounts reduces transaction and FX costs for users and speeds up the ability of a user to set up a banking presence in new territories. You can start building your international banking network by signing up for a Global Account and opening currency accounts for the regions where you want to do business the most.

Businesses can buy currencies when rates are favorable, store them in Global Accounts, and use those funds when needed. Users can also use Global Accounts to hedge those funds. For example, a Global Accounts user can split money between USD and euro so if one loses value unexpectantly, their business is somewhat protected against the loss by holding value in another, stronger currency.

The setup is easy once you’ve gone through standard onboarding process with Know-Your Customer (KYC) and Anti-Money Laundering (AML) checks:  

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Opening a Global Account:

Once signed up and onboarded for a Global Account, users press an “activate” button next to the currency where they wish to open a currency account. All account details are issued in real-time, including unique BICs and IBANs for each supported currency.

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Topping up a Global Account:

Adding funds to a Global Account is quick and easy.  

If your regular bank account is in the same currency as your Global Account, you can send funds directly from your bank’s online portal or mobile app. If your regular account is in a different currency, simply use the Make a Payment feature to top up your account in your chosen currency with preferential foreign exchange (FX) rates.

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Converting Currencies in a Global Account:

Users can convert funds between Global Accounts at the click of a button.  

Once currencies with active accounts are selected, customers are shown live FX rates, and all transfers are conducted in real-time. The conversion rate is also collected for future reporting purposes.

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Paying and Receiving with a Global Account:

After a successful Global Account setup, users can supply their customers or debtors with unique BICs and IBANs from the relevant virtual currency account and receive payments.

Users can also use their accounts to pay in the recipient's local currency quickly and at a lower cost, just like a virtual wallet.

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Too Long; Didn’t Read

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Virtual Accounts and Virtual Wallets are two distinct financial products with distinctive differences.  

Global Accounts by TransferMate is the nexus point of these products and offers the best benefits of both in one integrated platform.

Sign up for a Global Account today and build your own international banking network to manage multiple currencies, pay, and receive globally within three clicks. It’s so fast, it’s impossible to do it any quicker.  

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