Inside the Factory: A Fresh Look at the Mechanisms of Centralised Payments, Cash, and Liquidity

The concept of the in-house bank (IHB), and its complementary structure, the payment factory (PF), emerged gradually in the 1970s and 1980s. As a means of better serving their subsidiaries, they were seen, typically by larger firms, as pioneering methods of centralising and standardising their cash, FX and funding activities, and easing payment flows.

The adoption of IHBs and PFs gathered pace in the following decades as more major European and global multinationals, tied up with increasingly complex cross-border trade and FX structures, discovered the advantages of centralisation. Uptake accelerated in more recent times as innovative technologies were incorporated into the design of the IHB/PF setup.

However, with technology development seemingly never resting, today, treasury and finance teams are operating in a world where growing expectations for instant payments and real-time liquidity visibility, vie for attention with intensifying commercial pressures, heightened fraud risks, and increasing regulatory scrutiny. 
Multiple drivers aside, ultimately, IHB/PF initiatives ultimately serve the same purpose, says Demaille. “They give’ companies a clear view of their cash, wherever it is held and across all their entities. But visibility is only the starting point.” The real value lies in using that information to decide where liquidity should sit, when it should move, and how it can work harder for the group.” In a more fragmented world, and as activities become increasingly regionalised, the challenge is therefore not simply to see cash, but to turn that view into timely, coordinated action. 
But Demaille alights on a second challenge for which the IHB/PF setup is a potential solution: cost control, and operational efficiency. “An IHB/PF structure can reduce funding costs by making better use of the group’s available liquidity. Better control here leads to better decisions and a more efficient organisation.”
Arguably there is a strong operational benefit too, continues Demaille. Standardising the way payments and collections are processed reduces friction and makes treasury operations more efficient, she notes, citing faster processing, fewer exceptions, less manual repair work, and fewer failed transactions requiring intervention from treasury and IT teams.  

Maturing approach

“At the end of the day, treasury is about having the right cash in the right place at the right time, at the lowest possible cost and with the least operational effort,” says Demaille. As organisations continue to adopt IHB/PF structures – and the related practices of POBO (Payments on Behalf Of) and COBO/ROBO (Collections/Receivables on Behalf Of) - the focus for many early adopters is the shift towards structural maturity as they seek to leverage their investment. 
Indeed, for the IHB/PF advance party, the objective is no longer simply to centralise processes, but to create agile, resilient and data-driven treasury operations. For companies embarking on the journey today, the ambition should go beyond enhanced visibility. It should be to convert data into decisions, control into intervention, and liquidity insight into measurable financial and operational outcomes. 

“In a more volatile, complex and highly regulated environment, leading off with a push for increased control immediately suggests an IHB/PF setup,” Meeuwis submits. Importantly, he stresses that this is where treasury fully ‘owns’ the cash, and indeed all company liquidity.

Of course, the IHB/PF structure will not be the ultimate destination for every company seeking greater control. But the questions remain powerful: “Where is my cash, who owns it, what action does the data trigger, and how do I make sure liquidity is working for the organisation?” In turbulent times, visibility without decision rights and execution capability risks becoming little more than better reporting. 

 From visibility to action

The arrival of real-time payments rails has created an opportunity for treasurers equipped with an IHB to move liquidity almost instantaneously. This, explains Meeuwis, not only reduces the need to hold cash buffers – essentially dead cash - across multiple locations, but also provides an intra-day opportunity to optimise the use of balances. 

Alongside the in-house incorporation of normally bank-led pooling mechanisms and fund-sweeping techniques, the emergence of the virtual account (VA) structure in an IHB setting has raised the possibility of more easily reducing the number of physical bank accounts that a company needs to hold. Used in an IHB setting, VAs act as an internal ledger to track, segment, and reconcile subsidiary or business unit cash flows without needing additional separate physical bank accounts.
While this has an obvious cost advantage over the traditional model throughfewer accounts and potentially fewer banks the more important benefit is , automated reconciliation. “It creates  immediate centralisation and a level of cash granularity that treasury would otherwise struggle to achieve across multiple real accounts,” says Meeuwis.  “But granularity matters only if it helps treasury act: identify exceptions sooner, release idle balances, rationalise accounts and move liquidity with greater precision.”
It’s also why real-time payments and the widespread use of VAs in payment factories are already standard practice. “They are no longer innovations; they are the foundations of a well-run IHB or PF,” says Demaille. 

Powered by progress

The next major shift will come as AI is adopted, particularly in the execution and control of operations, Demaille comments. “This is where companies still face the greatest day-to-day challenges: exceptions, manual checks, investigations and operational errors.”
AI has the potential to automate and strengthen these controls, making processes more reliable, and reducing operational workloads. “It can drive more accurate predictions, and improve fraud detection and anomaly detection too,” adds Meeuwis. “While there will still be outliers – and the risk of black swan events now seems ever-present - AI can help in optimising processes and enabling a stronger focus on core activities, which ultimately benefits the whole organisation.” 
Tokenisation is another advanced technological intervention that Meeuwis is keen for treasurers to explore in the IHB context, believing they can use tokenisation to establish their IHB as “an internal real-time liquidity marketplace”. He explains that traditional banking models mean that, even when terminating in an IHB, cash positions are often reconciled after the event, and cash movements remain linked to banking cut-offs. Using tokenisation keeps cash flows moving 24/7. As long as treasury remains within its chosen framework – the blockchain or stablecoin environment, for instance - it will be able to instantly move funds to where they are needed within the organisation. 
And there are further use cases. In tandem with AI, programmable payments within an IHB/PF setting can become a powerful new tool. “By creating appropriate rules and conditions for an automated payment to be triggered, it enables instant execution,” explains Meeuwis. By removing the need for manual approvals, for example when moving cash reserves across accounts as specified balance thresholds are met, it frees up treasury time to engage in more strategic, rather than simply operational, actions. 
These more advanced technologies – AI and tokenisation in particular - can be natural partners for the IHB/PF scenario. However, notes Meeuwis, for tokenisation especially, adoption depends on corporate policy. “Some still see this as being connected to crypto operations, and understandably few are in favour of that.”

Indeed, Societe Generale Forge's regulated stablecoins, EURCV and USDCV, are designed to combine the standards of regulated financial markets with blockchain-based settlement capabilities. EURCV is a euro-denominated token, while USDCV is denominated in US dollars. This can provide access to alternative settlement rails and, as Meeuwis notes, support transactions across some traditionally complex cross-border corridors. The strategic prize, however, is not simply end-to-end visibility. It is the ability to act on that visibility continuously, moving liquidity when and where it creates the greatest value rather than waiting for conventional cut-offs.

Rules and engagement

As a major determinant on how far a business can go in using an IHB/PF for centralisation, regulation can be among the most challenging, cautions Meeuwis. Exchange or capital controls, and the use of thin capitalisation and intercompany lending or transfer pricing, could all impede full adoption of this structure. “It’s why I always stress the importance of treasury not being isolated on its own little island,  but always being ready to reach out to different partners within the organisation.”  

While new technology can make IHB/PF projects easier to structure and deliver, creating a successful project remains a major strategic project that ought to go far beyond treasury, Demaille concurs. 
By bringing legal, tax, accounting, IT, and compliance, for example, into the conversation, it ensures any thoughts on centralisation, especially the creation and maintenance of an IHB/PF structure, are always tackled in the most competent and all-encompassing manner. 

“There’s no one-size-fits-all approach to an IHB/PF setup as it really depends on where each company is located, how it is structured and organised, what it wants to achieve, and what is legally permissible,” notes Meeuwis. “The process very much includes keeping a close watch on all regulatory developments from an IHB/PF perspective.”

Treasury’s juggling trick

When adopting an IHB/PF, there is a delicate and constant balance to find between the drive for efficiency, the constant march of innovation, and compliance with a globally disparate ruleset. “Most corporates looking at this are fully aware of the juggling act that they need to do in order to keep all those elements on track,” accepts Meeuwis. 

For Demaille, “there is no universal recipe”. As such, she suggests starting by defining the treasury team’s main strategic intention and the key pain points that impede this. “When the objective is clear, the right balance between innovation, efficiency and compliance becomes easier to find.”

At a practical level, while compliance may not be the first aspect that comes to mind for a project of this type, Meeuwis says it is nonetheless an inescapable component. This is why it features strongly in the IHB workshops Societe Generale has arranged for clients as they seek to understand what might be required of them, should they take on this transformation.

“And it is first and foremost a business transformation project,” emphasises Demaille. “The most important phase is not the structuring nor the implementation; it’s understanding the opportunity, and being clear about the ‘why’,” she states. “When the purpose is clear, the correct structure follows. And when the structure is right, its execution becomes so much easier.”

A convincing approach

To move towards that state, the advice is to ensure all key partners - legal, tax, accounting, IT and compliance – are brought into the mix at the design phase of the IHB/PF structure. Driven by a critical appreciation of the purpose, the blueprint that emerges from these discussions precedes all those concerning the tools, techniques, and software. Indeed, warns Demaille: “The biggest mistake is to start with the solution.”

How long it takes to create a functioning IHB/PF depends on the complexity of the business and its locations. But it also depends on the cooperativeness of the various departments and entities involved. Indeed, says Meeuwis, companies should not underestimate the impact of change that an IHB/PF can bring, and this is something that must be handled from day one.

Forming a cross-functional change management unit that is empowered to operate from front to back is a good starting point. And treasury specifically should be prepared to explain the benefits not only from its own perspective but also from that of all the other parties. That explanation should be targeted at tax and legal in particular because, as Meeuwis comments, “they typically only see the downsides with this type of project”. Indeed, he adds, a correct transfer pricing structure is a notable challenge, and can take time to set up. 

“But when you have all department heads together, and all noses pointing in the same the same direction, an IHB project can move quickly,” Meeuwis says. And while he adds that “it helps to work with a bank that can assist in setting up the most effective infrastructure, and move the process towards real-time reporting”, on the corporate side there are foundational questions to ask. 
Core systems - ERPs and TMSs specifically – need to be readied so that inputs both from within the organisation and from the banking side can be aligned. “This is where you often see companies dropping out,” he cautions. “If they are engaged in multiple M&As, or they are rapidly carving out entities, those core systems can be a challenge to coordinate and connect in a timely manner. In such cases, often companies will retain legacy processes because it’s just easier.” 

One for all

For most of the departments impacted by the adoption of an IHB/PF, there is a technical and cultural learning curve. But neither are insurmountable. The degree of challenge can be alleviated by top-down support. A mandate from the board or CEO is highly persuasive when others are determined to hold on to their legacy banking relationships. 

“If local financial teams are allowed too much leeway, then it can develop into a frustrating power-play,” comments Meeuwis. “But if the mandate is such that all cash and liquidity belongs to treasury, and that ultimately it needs to be centralised within the IHB, then it will be somewhat easier to align all parties with the project goals.” In pink, our proposition for the title highlight. 
It is perhaps also worth pointing out that if all cash, liquidity and payments are handled by the one central treasury function, it is not a dissolving of local control, but rather an opportunity to free-up time for those local teams to engage more with value-adding local market activities. 

But given the potential breadth of coverage within an IHB/PF – from standard payments, to FX hedging, investments, intercompany financing and more – Meeuwis concludes that when these structures do place treasury in the role of “central orchestrator of all cash and liquidity”, it actually empowers the whole group.