Account structures and functionality

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Chapter 4

While the breadth and depth of the schemes available are critically important, you may need more from your banking partner. There’s a wide variety of account types available depending on the services you offer:

  • Operating accounts: where you hold your own business's operational funds.
  • Customer segregated accounts: Your customers' accounts that sit alongside your operating accounts, keeping your customers' funds separate to your own.
  • Client money accounts: accounts that let your business receive and hold money for (or on behalf of) your customers. These accounts separate your customers' CASS 7 investment funds from your own operating accounts.
  • Multi-currency accounts: holding multiple currencies within one account, whether operating, segregated or client money.

That means examining the additional services on offer, particularly around account types, account structures and multi-currency support. The question of real vs virtual then becomes a decision about the best way for your business to structure those accounts.

Account structures

Real accounts

As the name suggests, this is an actual account that holds money. Real accounts have balances that are credited or debited. This type of account structure will have its own account number, sort code and IBAN (International Bank Account Number) for each account. They offer full open/close, disable, re-enable and freeze functionality.

One type of real account structure is to have one real account for multiple customers. For example, a credit union using this kind of account structure could include all its members on one account. The members’ money would be co-mingled, which means the credit union must manually track incomings and outgoings and draw and manage balances for each member.

Another kind of real account structure is to have several designated real accounts. For instance, a smaller wealth management firm with 10 customers might prefer a designated account for each. Because each customer has their own account number and sort code, the firm doesn’t have to track balances manually.

Real accounts make sense in these examples because the credit union and wealth management firm have a manageable number of customers. But what about financial institutions that manage money for tens of thousands or even millions of customers? That’s where virtual accounts come in.

Virtual accounts

Unlike real accounts, virtual accounts don’t hold any money. A virtual account is really a mechanism to allocate money to a pot within a real account. That means funds don’t actually move, and the account number works like a reference number. You might think of them as redirecting money to and from a real account in real-time, but they don’t settle any transactions or carry their own balances.

A virtual account structure enables financial institutions to support a vast number of customers with one or just a small number of real accounts. Each customer has their own virtual account and fully addressable vIBANs (virtual International Bank Account Number), which, on the surface, behaves exactly like a real account. The underlying virtual account structure means that the organisation can notionally segregate its customers’ money while keeping the funds centralised in one or more real accounts.

For example, a rapidly scaling digital asset firm might have a single real account and thousands of virtual accounts – one for each of its customers. The digital asset platform’s virtual account infrastructure would allow them to see where each and every one of their customers’ money is without the need to manage thousands of individual real accounts.

If you think of a real account as a centralised location where all customer money is held, virtual accounts are the filters that help financial institutions keep track of it. And that filtering system should have as many logic layers as the organisation needs.

A virtual account structure is a logical choice for financial institutions that are growing quickly or anticipating a period of rapid growth. At this point in their journey, switching from real to virtual accounts could unlock greater efficiency and be more cost-effective. This scalable structure is built to support exponential future growth and will ultimately help these ambitious businesses manage their customers’ funds more effectively.

Account features: multi-currency

Multi-currency services are becoming increasingly important, as we have seen with some of the most well-known fintech brands. Monzo, for example, gained a lot of its initial popularity as a card people used abroad because it offered cheap exchange rates and ease of making payments to retailers across Europe.

Firms have tended to shy away from offering multi-currency due to the cost to integrate and implement, lack of fee transparency, or lack of currency pairings. If your business is looking to scale, then you may also want to examine a provider’s multi-currency offering.

Some questions to ask
  • Do you offer operating, client segregated, client money and multicurrency accounts?
  • Do you provide real and virtual accounts?
  • Can you outline the process of switching from real to virtual?
  • How many virtual accounts can you open, and at what cost?
  • Account features, for example: can the beneficiary see the name of the sender?
How does ClearBank compare?

At ClearBank, we believe in helping financial institutions choose the right type of accounts for their business and for their customers. These could be operating accounts, customer segregated accounts, client money accounts or multi-currency accounts. Then, we work closely with you to determine the best account structure for your business between all real (IBAN) accounts or a mix of both real and virtual (vIBAN) accounts.

ClearBank real accounts can be opened for our clients on the same day – and we generate a unique IBAN (International Bank Account Number) for each one. There’s no limit on the balance that can be held in ClearBank real accounts, and we don’t set a daily transaction limit. All GBP is securely held at the Bank of England, and customers can get an extra layer of confidence knowing their money is going to the right place through Confirmation of Payee.

ClearBank virtual accounts are built for flexibility with the freedom to open millions of accounts, with no limit on the number of layers of logic a financial institution can create within its ledger. Our API enables financial institutions to open virtual accounts any time, day or night, 365 days of the year – each with its own vIBAN (virtual International Bank Account Number).

Multi-currency: Our accounts enable your customers to see their individual balances in each currency under one IBAN. We can support your customer to make international transfers in real-time, available in 13 currencies (and growing) and offer foreign exchange capabilities with real-time auto-FX orders with 49 currency pairs (and growing).

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