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?
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.