Many corporate treasurers are already familiar with virtual accounts. These are often established as part of a collections on behalf of (COBO) structure within an in-house bank. One entity collects cash on behalf of a group of companies, thereby removing the need to hold and manage accounts per entity. This is a valuable way of centralising collections, and helps to reduce the number of bank accounts. However, with large volumes of collections coming in to a single account, there can be difficulties both with reconciliation and posting of incoming flows. Furthermore, customers may not necessarily be willing to pay to an account outside their homecountry. A virtual account solution enables companies to provide customers with local account details (the ‘virtual’ account), but these are linked to a central collections account. These virtual account numbers can be assigned to each entity, through to individual customers, product lines etc. This makes it easier to reconcile the collections account, and post incoming flows to the relevant intercompany account and customer credit account automatically.
A powerful combination
However, the potential for virtual accounts extends significantly beyond in-house banking, as the new solution designed by Quantoz and UniCredit demonstrates, taking the concept of virtual accounts one step further by combining it with IoT. In the past, an ‘identity’ could be assigned only to a person or organisation. By leveraging Quantoz’ blockchain technology, a device, machine or object can acquire an identity. The missing piece, however, is that a device cannot have a bank account. By linking the device or machine to a virtual account, which in effect becomes a digital wallet, the value chain is complete, combining cash management and IoT into a single solution. In doing so, it creates an entirely new value proposition and facilitates the business models of the future today.
Innovation in practice
Let’s consider the use case of a car sharing company. IoT-enabled cars exist today, with black boxes and trackers now commonplace. The car can transmit data on its location, its mileage, toll charges, fuel levels etc. By linking this data with a charging structure, and providing the car with a virtual account number, the company can provide users with full usage statements and invoices based on the information from the car. The concept of machine identity through blockchain marks a step change in IoT, and when integrated with virtual accounts, they can be connected into a payments and cash management infrastructure, including micropayments. This additional step is crucial to the ability to integrate IoT into viable and efficient business models, and monetise these business models, but there are multiple use cases across a wide variety of industries. Machines or domestic appliances can order their own spare parts, or monitor time and consumables, which is valuable in facilitating the sharing economy. The energy industry is also ripe for innovation: for example, solar panels on one house could fuel an electric charging hub for its neighbours, hinting at some of the vast potential for smart cities.