Rationalizing Payment & Collections Using POBO COBO Models

Transaction banking refers to the movement of money from one place to another. It is the area of banking that addresses the operational needs and day-to-day transactions of business, corporate and institutional customers. Thus, payments and collections form an integral part of transactional banking. In today’s modern world, all major corporations have their business operations spanning across different parts of the globe, transacting using multiple currencies and accounts. In order to operate as a legal entity in any particular country, they need to open bank accounts in that country, based on their relationship with different global banks. In such cases, it is quite difficult for the global finance controller to oversee their consolidated liquidity and manage them based on their requirements. Added to it the tightly coupled banking laws moderating the transfer of funds from one account to another in different countries.

Keeping in mind the evolving needs of transactional banking, Mindgate, one of India’s top payment solutions company, offers a compact digital transaction banking platform using POBO(Payment-On-Behalf-Of) COBO (Collection-On-Behalf-Of)  models. The POBO COBO models help banks define customer-specific pick-up arrangements, set specifics for products of partner banks for cash and check collections, making funding arrangements for partner banks and map their servicing location. This eventually ensures full-proof surveillance of the partner bank deposit life-cycle.

How Exactly Does POBO COBO Work?

Rationalizing Payment & Collections Using POBO COBO Models

POBO (Payments – On – Behalf – Of) and COBO(Collections – On – Behalf – Of) are widely recognized as the most efficient of all global cash management system. They are typically implemented as the last stage of ‘in-house’ banking. They enable companies to channel their payments and collections through a single legal entity, so they can simplify cash management structures by eliminating complex physical pathways.

In traditional systems, payment factories used to automatically initiate outgoing payments from accounts owned by the participating group entities. The payment was instructed by group entities while the payment factory acted as a technical and operational processing hub.

With a transaction using POBO, the instruction for and settlement of payment is made from accounts centrally owned by Treasury. A regional treasury center (RTC) or a shared service center (SSC) makes payments “on behalf of” its participating group of companies through a single account. In the payment reference field, the group entity is marked as the ordering party, on whose behalf the transaction is initiated by the payment factory. Internal bank accounts operated by the payment factory in the group’s enterprise resource planning (ERP) system, replace the external bank accounts. The payment factory then initiates a payment to the third party. The beneficiary uses the entity name held on the remittance information to identify on whose behalf payment is made to reconcile the payment. COBO also works in a similar fashion where the collections factory collects payment on behalf of the group entities via a centrally owned external bank account.

A smart transacting mode that ensures improved vigilance over the inflow and outflow of funds, virtual account also helps to improve automatic reconciliation. They are non-physical accounts that can be used by clients to optimize their cash management processes. Under virtual accounts, a bank would open a series of dummy accounts(IBANs) under one physical account. Underlying each of these virtual IBANs is a real physical account to which the payments made to these virtual accounts are routed. From a user’s perspective, these dummy accounts offer the same capabilities as a bank account, but without the associated administrative workload and costs so therefore drastically reduces the need for real physical accounts. Using a virtual account improves fund management, eases the reconciliation of payment accounts and saves the cost of customers as well as payers.

The Benefits of POBO And COBO

These ‘on-behalf-of’ structures help businesses achieve operation and cost efficiency in their cash and liquidity management through ultimate centralization and economies of scale. With a POBO approach, companies can optimize payments according to their individual criteria and automatically select the most cost-efficient payment method and banking connection.

You can concentrate payments and collections into one external channel using a single account per currency. This allows you to rationalize bank relationships by limiting the total number of external bank accounts in the group and simplifies banking relationships. As a result, you also save on bank and transaction fees.

On the security & costing front, using a centralized system reduces IT maintenance and administration cost and helps streamline and standardize bank connectivity. Centralizing payments means fewer people are involved in the process, hence reduced the risk of internal misuse. With a centralized payment factory, you will know when and where the cash is flowing out of the group. Clear visibility makes it easier to detect and tackle payment fraud. This also eliminates the need for multiple accounts at distributed locations.

Leverage the benefits of Mindgate’s POBO COBO models to optimize payments and collections and attain the most cost-efficient payment methods.

Adopting Digital in Transaction Banking

The growing demand for transaction banking stems from the fact that corporate houses today seek a smarter and efficient cash management system for smooth business operations. An increasingly competitive landscape has posed critical challenges to the organizations in terms of managing multiple banking relations, performing bank account management and handling complicated account structures. ‘Digital Transaction Banking‘ with its latest liquidity management tools and innovative strategies offer optimal solutions to those seeking end-to-end cash management for efficiently handling their pools of liquidity and optimizing their working capital, dispersed across domains and regions.

Role of Technology in Transaction Banking

Digital Transaction banking

The advent of new technologies is redefining the roles of banking sectors in terms of their operating models and their customer interaction. It has brought in its wake a new level of transparency, efficiency, and speed that has transformed cash management and transaction banking for the benefit of the corporate clients.

As banks upgrade their legacy systems for developing sustainable digital solutions and streamlined processes, innovative minds at Mindgate have come up with a comprehensive solution for banks to effectively manage advanced digital modes of collections and invoicing for the banks’ customers and their business partners.

VAM (Virtual Account Management)

As corporate enterprises grow bigger and complex they face tremendous pressure for optimum fund utilization. This requires them to have a better view and control of the inflow and outflow of their funds; this is where virtual account comes into the picture. Virtual accounts are dummy accounts linked with the single physical account which enables the corporate to address real-time liquidity needs, manage payables and receivables and segregate funds across different entities.

Mindgate is one of the leading IT service providers, offering digitalized solutions that enable banks to optimize their working capital and improve liquidity management. With virtual account concept turning out to be the next big thing in liquidity management, Mindgate offers Virtual Account Management(VAM), a comprehensive cash management solution that delivers the following advantages:

Simplifies Cash Management Structure: Today, when corporate houses are looking forward to a stronger grasp and control over their cash transactions and their banking relationships, VAM is being viewed as the optimal solution. It allows the corporate to efficiently manage their cash management structures and business risks. It facilitates regularized transactions and serves as a central master account through which the digital payment for international, national or local transactions can be done with ease.

Reduces Number of Bank Accounts: It is a unique solution that offers a single platform for managing any number of accounts linked to multiple banks. Be it the cash and liquidity management, payments and receivables management or in-house banking and client money management, VAM enables corporate to get a collective view of multiple banks accounts through a single window.

Our user-friendly products like e-collect allow the customer to create a multi-tier hierarchy of virtual accounts which provides a centralized system for the payments and collections processes. Moreover, the POBO COBO models facilitate the paying process on-behalf-of subsidiaries (POBO) and introduce true collecting on-behalf-of subsidiaries (COBO). These modules impact corporate clients positively to boost the efficiency and transparency of their financial transactions.

Serves as Flexible and Accessible Solution: The growing popularity of VAM is credited to its inherent flexible structure. The virtual cash management offers flexible account structures that allow the segregation of business more precisely and ensure better control over cash management and transparency. With a sophisticated VAM reporting module, tracking the status of every transaction and virtual account in real-time is convenient. While this provision offers better visibility of transactions and balances to the corporate, for banks the complexity of managing multi-account infrastructure is reduced.

Besides, Mandate Management is another important aspect of transaction banking which further streamlines payment processing and improves the operational efficiency of banks. We offer flexible collection solution for your business model. A fully automated system, Direct Debit Mandate Management (DDS) is a settlement facility process that ensures safe and hassle-free financial transactions between financial institutions. The system enables the banks to offer the mandate setup for On-us mandates (within bank accounts) independently or with support of Central Bank integration or clearinghouse based data exchange for other participating banks.

With the rapidly changing technology landscape, there can be no denying that corporate today seek better solutions. Mindgate as a solutions provider adopts the innovative and collaborative approach for clients to bring in optimum operational efficiency. Turning challenges into opportunities, we endeavor to offer products that keep transaction banking solutions at par with the evolving technologies and create a value proposition for both, corporates and banks.

Cash Management – A Journey From The Traditional To The Smart Digital!

In today’s age of digitalization, the once-popular modes of cash & cheques are slowly ceasing to remain the primary instruments that businesses in India use for their transactions. Till now, cash management has been a cumbersome activity which required a representative of the organization to physically transport the cash and cheques to the banks, join the queues and get the money deposited into the account. But with growing awareness and use of digital money, banks are evolving from the traditional silo-based cash counters to web-based services making way for digital cash management.

Progressive banks with focus on customer delight have already hopped on the mobile bandwagon, offering customers with apps designed to do banking on the go. According to a report compiled by PwC, 77% of financial institutions have increased their internal efforts to innovate, with many businesses embracing the disruptive nature of FinTech [1].With the availability of so much technology around, many businesses are looking for banks offering an enterprise-wide solution for their organization. This has led to banks partnering with technology service providers who can simplify their digital cash management system and contribute in addressing their challenges.

What Does Cash Management Mean Today?

Cash Management - Traditional to the Smart Digital

Every business has a multitude of cash inflows and outflows that require management, in order to meet payment obligations, plan for future payments, and maintain adequate business stability. It’s all about making sure that your cash is optimally utilized and is directed to the right place at the right time.

Many Corporates and SMEs look to their bank to manage their cash on their behalf.  It includes basic account management such as cheque and cash deposits, savings, liabilities, and payments. Digital Cash Management, as a service, is provided by almost all the major banks and even the minor banks using outsourcing. With time, the role of banks has evolved from being a mere financial mediator in all transactions to trusted technology partners.

 How Will Technology Impact Cash Management in Banks

Now that the entire banking world is shifting to self-service models, banks are heavily investing their money into a banking software, which is easy to use, dependent, and is fortified with advanced security features. A big emphasis is given to cash management which involves high volume transactions from different accounts. The Digital transaction banking sector is estimated to generate big revenue in the days to come. Since smaller banks and organizations are growing in strength, their rising asset size forecasts a steep growth in cash management.

Through the cash management solutions at Mindgate, there is a proactive and insightful way to handle the working capital. E-collect by Mindgate is a platform that enables banks to interact with diverse corporate business systems, simultaneously integrating all the bank payment and receivable digital channels with core banking. It provides a holistic Collection and receivable management alongside  a cluster of new-age banking solutions such as Real Time Payments and Utility Bill payments. Our products can help corporates execute collections through automated workflows along with comprehensive reporting services, comprising standard and customized reports. The Virtual Account (VA) feature of e-collect facilitates payments and collections through a single account using POBO/ COBO (Payment on behalf of/ Collection on behalf of). The benefits of POBO COBO includes:

  • Greater Transparency: A centralized and real-time overview enables management at head office to track company-wide cash flows and ensure compliance.
  • Lower Risk Of Fraud: Regular surveillance of receivables and collections of local entities thus mitigating fraud risk of corporates.
  • Monitoring Local Subsidiaries: Centralized and standardized processes can help monitor local payments by providing direct feedback to local entities.
  • Optimizing Payment: POBO assures of a payment lifecycle that guarantees optimized and cost-efficient payment methods.

If you are looking for a reliable technology partner who can develop a centralized digital cash management solution for you, please contact Mindgate for the most advanced collection & payment solutions.

Reference:

1. How technology is impacting the finance and banking sector