Virtual Bank Accounts; Everything you need to know
Let’s assume you run a business with just one customer. It means if you receive any payment into your bank account then it is definitely from that customer. No proof of payment is required.
Let’s say you have two customers. Whenever they make deposits into your bank account they’ll have to send a proof of payment so that you can give them value.
Now, let’s assume you have one million customers. Try to imagine how cumbersome it will be to be matching deposits with each customer before giving them value.
This challenge gave birth to online payment solutions, where customers can pay with their ATM card(s) and get a confirmation immediately from your business without any form of human intervention.
Thanks to online payment service providers such as Paystack, Flutterwave and Monnify that work with Nigerian banks to deliver seamless online payment solutions.
Due to the concern of most internet users about the safety of using their cards for making online payments, bank transfer methods via USSD and mobile applications were introduced into the online payment space.
With these methods, someone can make a payment to your business directly by transferring funds to a special bank account number and the payment will be confirmed immediately by your business. This is what we call a Virtual Bank Account.
So, what are Virtual Bank Accounts?
Virtual Bank Accounts are specially designed bank accounts that can be used to process and immediately verify payments made to a business. It has highly been accepted due to the fact that one doesn’t need an ATM card to successfully make payments anymore.
Some things you should know about Virtual Bank Accounts.
1. Virtual Bank Accounts are neither savings nor current accounts. They are not real bank accounts.
2. Virtual Bank Accounts don’t retain money. They are only used to process money into the bank account(s) of a business, through a payment service provider such as Paystack.
3. There are two types of Virtual Bank Accounts;
a. Single Transaction Virtual Bank Accounts
b. Permanently Assigned Virtual Bank Accounts
One thing they both have in common is that they cannot be assigned to more than one user at any point in time.
How do Virtual Bank Accounts work?
This service is provided by online payment processors such as Paystack, Flutterwave and Monnify. They work in collaboration with banks such as Providus Bank, Zenith Bank, Wema Bank and Rubies Bank.
If as a business you integrate an Online Payment Service such as Paystack on your website to receive payments from your clients you automatically have the privilege to enable or disable Virtual Bank Account and/or card payment options.
Virtual Bank Accounts Explained;
a. Single Transaction Virtual Bank Account
This type of Virtual Bank Account is usually short-lived. When a user of a website wants to make a payment, a unique account number is automatically generated when the user enters the amount to be paid.
The user is given a maximum of 20 minutes to make a bank transfer of that exact amount into that bank account.
As soon as the money is paid, the payment is confirmed on the business owner’s website instantly and an email notification is also sent to the business owner and the customer that made the payment. Under normal circumstances, all these activities take place within seconds.
That account number becomes invalid as soon as the payment is completed or after the 20-minute time frame elapses.
All the payments received are usually processed into the bank account of the business owner within 24 working hours.
b. Permanently assigned Virtual Bank Account
This Virtual Bank Account can be used for the long term. It is mostly used by web services such as PiggyVest, SmartCoop and Cowrywise.
Their users can transfer money into their Virtual Bank Accounts anytime even without coming online.
As soon as the transfer is done, the fund reflects on the user’s wallet.
In as much as users make payments into their Permanently Assigned Virtual Bank Accounts, it does not mean the money paid is held in that account.
The money is usually processed into the bank account of the business owner within 24 working hours. Business owners can decide to disable a customer’s Permanently Assigned Virtual Bank at their sole discretion.
That being said, let’s look at the recent development in the Nigerian FinTech space.
On the 5th of February 2021, Providus Bank and some other banks discontinued the support of Virtual Bank Accounts for online payment service providers such as Paystack and Monnify.
These are the online payment services that provide payment solutions to PiggyVest, SmartCoop and Cowrywise to enable them to process payments via Permanently Assigned Virtual Bank Accounts.
This means all Providus Bank issued Permanently Assigned Virtual Bank Accounts were disabled with immediate effect.
This caused panic amongst users that have been using this channel for making payments. They thought all the money they paid will become inaccessible. Unknown to them that these monies are held in the corporate bank accounts of the owners of these savings and investment platforms.
As of the time of writing this article, online payment processing companies like Paystack and Monnify has forged a new relationship with Wema Bank and Access Bank to restore the Permanently Assigned Virtual Bank Account service for businesses and their customers to use.
There is no cause for alarm as all the previously transferred funds via Providus Bank has been paid into the bank accounts of these businesses. Paystack also promised to include more banks in the nearest future in other to encourage diversity in the Virtual Bank Account business.
Virtual Bank Account payment is one of the greatest disruptions that was introduced into the automated online payment space in Nigeria.
It is here to stay and will continue to gain wider acceptance as time goes on.
The end.
