In House Bank – Your Money Works For You Under Your Watch

Think of it this way: what if your global business could have its own bank? That’s the aspiration behind an IHB. It acts as an internal financial powerhouse, sitting right between your various group entities and the external banks. Its core mission? To help your business use its own resources more efficiently.

Why do we even need an IHB? The global banking landscape is incredibly complex and costly, especially for businesses operating across multiple countries. We’re talking about billions of dollars in working capital wasted annually due to inefficiencies. IHBs are deployed precisely to tackle this:

• Conserve Working Capital: Keep your money working for you within the group.
• Reduce “Bank-Extracted Economic Rent/Tolls”: Cut down on direct and hidden fees charged by external banks.
• Reduce Overall Organizational Risks: Gain better control and visibility.

By doing this, an IHB can literally save a company millions of dollars, potentially adding anywhere from 0.5% to 1% to profit margins. This is why IHBs are typically embraced by large enterprises, generally those with revenues of $10 billion and above. It’s a significant investment, but one that provides a powerful competitive advantage.

So, what are the key components that make an IHB work? From my perspective, these are the core modules:

• FX-Netting: Imagine all those foreign exchange transactions between your internal entities. An IHB nets them out, meaning only a fraction of the total volume actually needs to go through external banks. This significantly reduces FX tolls, fees, and improves lost liquidity.
• Inter-company Lending and Liquidity Pooling: This allows your subsidiaries to lend to and borrow from the IHB at arm’s length, guided by regulations. This drastically reduces the need for external funding, slashing interest costs.
• Payment Factories (POBO/COBO): This is about centralizing and automating incoming (Collection-on-Behalf-of) and outgoing (Payment-on-Behalf-of) payments. It gives corporate treasuries control, reduces fraud risks, and centralizes liquidity, all while being plugged into efficient local payment rails.
• Yield Management: This is crucial. An IHB aims to frame the most efficient yield for the company’s cash, potentially even leveraging an open banking framework.

An IHB is a sophisticated solution that requires careful planning in terms of people, processes, and technology, but the strategic and financial benefits are immense. It’s about taking control of your financial destiny!

An In-House Bank (IHB) is an evolutionary concept for the treasury function within multinational businesses, acting as an internal bank between group entities and external banks to conserve working capital, reduce banking costs, and mitigate risks. This perspective emphasizes the IHB as an aspiration for what a global bank should be for businesses, primarily serving large enterprises with significant revenue. Core components include FX-netting, inter-company lending and liquidity pooling, payment factories (POBO/COBO), and yield management.

Some ideas/questions and food for thought

1. Why can’t every multinational business have an inhouse bank?
2. Why can’t we implement inhouse bank in families ?