Treasury Contrarian View: The Case Against In-House Banks

Treasury Contrarian View: The Case Against In-House Banks

For years, in-house banks (IHBs) have been promoted as the gold standard for multinational corporations seeking centralized control over cash, payments, and liquidity. But in a world of real-time payments, virtual accounts, and advanced fintech solutions, do we still need in-house banks, or are they becoming an outdated legacy structure?

The Traditional Arguments for In-House Banks

  1. Centralized Cash Management
    • IHBs allow corporations to consolidate liquidity across subsidiaries, improving cash visibility and control.
  2. Intercompany Funding Efficiency
    • By acting as the internal lender, an IHB can reduce reliance on external financing and optimize internal funding strategies.
  3. FX and Risk Management
    • Centralizing FX hedging and risk management through an IHB can improve efficiency and reduce exposure to unnecessary costs.
  4. Bank Relationship Management
    • With fewer external banking partners, an IHB can streamline banking relationships and reduce costs associated with maintaining multiple accounts.

The Case Against In-House Banks

  1. The Rise of Virtual Accounts
    • Virtual accounts provide many of the benefits of an IHB—such as cash concentration and payment centralization—without the complexity of maintaining a separate banking entity.
  2. Regulatory and Compliance Burdens
    • Setting up and maintaining an IHB requires navigating complex regulations, tax considerations, and reporting obligations, which can vary across jurisdictions.
  3. Cost vs. Benefit Considerations
    • Implementing an IHB requires significant investment in treasury infrastructure, compliance, and personnel. In some cases, these costs may outweigh the operational benefits.
  4. Advancements in Treasury Technology
    • Treasury Management Systems (TMS), APIs, and AI-driven analytics now offer real-time cash visibility and liquidity management without the need for a formal in-house bank.

The Alternative: A More Agile Treasury Model

Instead of relying on a full-fledged in-house bank, treasury teams can consider:

  • Leveraging real-time payments and APIs to move cash where it’s needed instantly.
  • Using virtual accounts for cash concentration and intercompany funding.
  • Working with fintechs and alternative banking providers to optimize payment flows and liquidity management.
  • Implementing AI-driven forecasting to enhance cash flow predictability without the need for a centralized IHB structure.

Let’s Discuss

  • Is your organization still maintaining an in-house bank, or have you moved toward alternative solutions?
  • Do the benefits of an IHB outweigh the costs and complexity in today’s digital treasury environment?
  • How are virtual accounts, fintech solutions, and real-time banking changing the need for in-house banks?

We’ll be sharing insights from treasury leaders and industry experts—join the conversation and share your perspective!

COMMENTS

Alex lkun, Treasury Masterminds board member, comments:

In-House Bank isn’t dead, but it’s face is certainly changing. The traditional in-house bank is a cash concentration vehicle that the banks love so much for one big reason: it ties a multinational to them, making the operational business stickier and juicier. Not only you as a Treasurer end up relying on the bank to manage your cash pool (paying them for the privilege in the process), but you also are incentivized to move more accounts and cash for the bank, as it is difficult and expensive to pool across banks unless you look for some alternative structures.

Thankfully, there is a solution that allows multinationals to take back some control of their cash with the use of the tools available today. With a combination of TMS and bank connectivity tools, it is possible to set up a multi-bank cash pooling structure that reduces reliance on any single bank, moving the balance of negotiating power to the multinational but also allowing them to deepen relationships with the key banking partners in areas where they can provide significant value.

In such a structure, TMS monitors the cash balances and cash needs, managing  balances on each account that is part of the pool, moving the funds where they are necessary to make payments. With such a structure, one can imagine a cash-never-sleeps model, where the working capital is traversing the world during the working hours in each of the time zones to ensure its availability and full utilization on one hand, but also maximising the investment opportunity of excess funds.

Granted, one looking for a solution that will be suitable for every currency and jurisdiction under the sun will find such a goal unattainable. However, this approach could work for major currencies and is based on a well-known, proven foundation that legal, tax, accounting, and compliance teams will find more palatable than some of the other solutions.

Renea Mahadeo, Treasury Masterminds board member, comments:

Recent advancements in APIs, virtual accounts, blockchain, and AI agents have expanded the treasury toolkit, transforming how organizations optimize cash, liquidity, funding, and risk management. Traditional solutions were rigid, costly, and slow to adapt, leaving companies at a competitive disadvantage in a rapidly evolving digital world. The question is no longer whether treasury should invest in technology, but rather which technologies will future-proof operations.

To build the next generation of in-house cash orchestration, start with APIs and virtual accounts – these offer a low-cost, high-impact foundation before exploring blockchain and AI. Virtual accounts, powered by APIs, replicate the benefits of in-house banks without the regulatory and operational burdens, enabling real-time cash concentration, intercompany funding, and payment centralization with greater speed and flexibility. Regulatory and compliance considerations should not be overlooked. While virtual accounts are widely accepted and used by financial institutions worldwide, some jurisdictions have specific regulatory constraints regarding their use. It is best to work closely with banking partners to understand the legal framework requirements.  

Beyond this, blockchain and AI agents represent the next frontier. Treasurers should shift from asking, How long will a system customization take? to how can programmable payments and smart contracts optimize liquidity? When treasury processes mature, AI agents can autonomously manage liquidity across global subsidiaries, running 24/7 with real-time decision-making.

If we now have access to always-on technology, why not fully leverage it to build a more agile, automated, and cost-efficient treasury ecosystem?

Bojan Belejkovski, Treasury Masterminds board member, comments:

While in-house banks (IHBs) offer centralization benefits, they can be costly and impractical. The investment in technology, compliance, and personnel may outweigh the benefits, especially for organizations with diverse operational needs. Forcing business units or subsidiaries into a rigid IHB structure can create inefficiencies, as each unit may have unique relationships, regulations, and funding strategies.

Even with a shared bank, ERP, and TMS, an IHB can be an unnecessary burden. Modern treasury technology, virtual accounts, and real-time payments already offer centralized cash visibility without the complexity. Also, the regulatory, tax, and compliance challenges, along with managing intercompany loans and transfer pricing, add administrative overhead that fintech solutions can address with greater flexibility and lower costs.

Jouni Kirjola, Head of Solutions & Presales, Nomentia, comments:

While virtual accounts can reduce certain complexities compared to IHBs, they also introduce new challenges. Companies relying on virtual accounts remain heavily tied to their banking partners, increasing counterparty risk and reducing overall control. This dependency can become problematic, particularly in volatile markets or regions with limited banking options.

It’s true that IHBs come with regulatory and compliance requirements, but not across all regions. In reality, regulatory complexities vary significantly depending on jurisdiction. In some cases, an IHB can actually simplify compliance by consolidating reporting and controls rather than increasing complexity.

The claim that IHBs require significant investment in infrastructure, compliance, and personnel—sometimes outweighing operational benefits—is valid. However, the same applies to virtual accounts, which can also require substantial implementation effort, ongoing management, and regulatory compliance. The cost-benefit equation isn’t inherently tilted against IHBs.

Modern TMS, APIs, and AI-driven analytics offer impressive real-time visibility, but they don’t fully address critical aspects of intercompany funding and balance management. Bookkeeping too must remain efficient, structured, and compliant—something IHBs are designed to handle effectively.

When discussing real-time payments and APIs for moving cash instantly, it’s important to recognize that IC balances must be carefully managed. An IHB can eliminate the need for frequent balance transfers, providing a structured approach to IC funding. Additionally, using virtual accounts for cash concentration and IC funding overlooks the operational complexities of bookkeeping, which remains a key challenge.

Also Read

Join our Treasury Community

Treasury Mastermind is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information.

0
0

Leave a Reply