Global payments reimagined: How POBO drives strategic growth in 2025

Payments on behalf of (POBO): In-house banking deep dive

What is payments on behalf of (POBO)?

Payments on Behalf Of (POBO) is a cornerstone of in-house banking, enabling centralized execution of payments for all subsidiaries. Rather than each entity managing its own payments, the in-house bank—acting as a virtual internal bank—handles payment processing through centralized accounts. This streamlines workflows, reduces costs, enhances visibility, and improves control over corporate finances. Importantly, while the in-house bank functions like an external bank, it does not require formal banking licenses or regulatory filings typically associated with external financial institutions.
 

How POBO works in practice

The in-house bank acts as a virtual bank within the organization, offering banking services to affiliates much like an external bank would—but with significantly greater efficiency and control. This structure is especially impactful in POBO processing, where the in-house bank facilitates payments on behalf of subsidiaries, centralizing execution while optimizing processes. Here’s a closer look at how POBO operates within an in-house banking framework to deliver streamlined payment management.

• Payment Initiation - Affiliates process their required payments (e.g., vendor invoices) and submit them electronically to the in-house bank, specifying urgency and preferred payment methods.
• Virtual Account Management - Each affiliate holds a virtual bank account within the in-house bank, where payment transactions are posted and tracked.
• Routing & Execution - The in-house bank determines the most cost-effective and efficient routing for each payment. Factors include urgency, currency, and destination—whether through ACH, SEPA, or cross-border wire transfers.
• Approval & Fraud Checks - Centralized approval workflows and automated fraud detection mechanisms ensure secure, compliant processing.
• Payment Settlement - Payments are executed from centralized bank accounts owned by the in-house bank entity. The in-house bank posts intercompany accounting entries reflecting cash movements between affiliates and the bank entity.
• Reconciliation & Reporting - Affiliates receive virtual bank statements for reconciliation, mirroring external bank processes. Real-time status updates and dashboard reporting provide visibility into payment execution and cash positions.
• Global Structuring - In-house banks often operate with multiple strategic IHB hubs across regions (e.g., U.S., EMEA, APAC) to optimize regulatory compliance and tax efficiency, similar to how external banks have branches in multiple countries.
   

POBO common challenges & pain points

While every organization faces its own unique set of challenges, certain pain points tend to be pervasive across industries. Factors like decentralized payment structures, fragmented systems, and inconsistent processes can hinder efficiency, control, and visibility. Although this list isn't exhaustive, here are some of the most common issues we’ve encountered when helping organizations tackle POBO-related challenges.

Regulatory compliance & adherence challenges

• Cross-Border Payment Regulations – Varying country-specific regulations make it difficult to execute payments efficiently, requiring subsidiaries to maintain compliance separately.
• Fraud & Security Risks – A lack of centralized governance increases exposure to fraud, duplicate payments, and cybersecurity threats.
• Local Banking Restrictions – Some jurisdictions mandate local payment execution, forcing businesses to maintain multiple payment accounts for subsidiaries.
• Regulatory Compliance Challenges – Decentralized payment structures elevate the risk of non-compliance with global regulatory requirements.

Operational complexity & inefficiency

• Decentralized Payment Processing – Without POBO, subsidiaries manage their own payments, leading to inefficiencies, inconsistent controls, and higher fraud risk.
• Proliferation of Bank Accounts – Managing numerous external bank accounts across subsidiaries carries heavy administrative costs and complicates cash management.
• Lack of Standardization – Varying payment methods, approval structures, and banking partners make treasury operations highly fragmented and difficult to control.
• Manual Processes & Higher Error Rates – Lack of automation leads to manual intervention, increasing the risk of errors and inefficient processing.
• Administrative Overhead – Maintaining multiple banking relationships, local payment teams, and different payment formats adds excessive workload and complexity.
• Centralization of Expertise Lacking – Without a shared service model, treasury teams and payment operations remain siloed, creating inefficiencies.

Technology & integration gaps

• Siloed Payment Systems – Lack of integration between ERP, treasury, and banking platforms results in inefficiencies, errors, and difficulty in tracking payments.
• Delayed Payment Reconciliation – Manual reconciliation of payments across multiple entities and bank accounts slows financial closing processes.
• Limited Automation & Straight-Through Processing (STP) – Reliance on manual workflows increases transaction errors and compliance risks.
• Inconsistent Payment Data & Visibility – Fragmented systems lead to gaps in data, making it difficult for treasury teams to make informed cash flow decisions.

Liquidity & cash visibility challenges

• Inability to Centralize Cash Resources – With payments dispersed across multiple subsidiaries, treasury lacks visibility into cash positions, impacting decision-making.
  Increased Working Capital Needs – Fragmented liquidity across entities means subsidiaries hold excess buffers, leading to inefficient cash utilization.
  Higher External Borrowing Costs – Poor cash pooling leads to unnecessary short-term borrowing while idle cash sits unused in other entities.
  High Foreign Currency Costs – Affiliates incur unnecessarily high FX fees as a result of managing their own currency conversions and maintaining decentralized foreign currency accounts.
   

Key benefits of POBO

Organizations implementing POBO can unlock a wide range of benefits, but the value derived often varies based on their existing processes, payment landscapes, and operational complexity. Whether dealing with domestic-only transactions, international payments, or multi-currency processing, POBO can provide organizations with significant hard and soft benefits. Below are some of the most prominent benefits that companies typically realize when adopting a POBO structure.

1.Regulatory compliance & payment security

• Stronger Regulatory Compliance – Centralized governance ensures all payments adhere to global standards, reducing non-compliance risk.
• Enhanced Fraud Prevention – A single control point with automated fraud detection and approval workflows significantly reduces security risks.
• Reduction in Local Banking Dependencies – POBO minimizes the number of bank accounts needed across subsidiaries, simplifying banking relationships.
• Audit Readiness – Improved tracking and centralized documentation enhance auditability and regulatory compliance.

2. Operational efficiency & cost reduction

• Standardized Payment Execution – A uniform process improves execution speed, accuracy, and vendor satisfaction while reducing human errors.
• Lower Transaction Fees – Bulk payments through a centralized treasury reduce per-payment costs and allow for better banking rate negotiations.
• Elimination of Redundant Banking Costs – Removing unnecessary local bank accounts reduces maintenance fees and administrative burdens.
• Optimized Payment Routing – POBO enables routing payments through local in-house bank-owned accounts, leveraging cost-effective payment methods (ACH, SEPA) instead of expensive cross-border wire transfers.
• Payment Aggregation – Consolidating payments from multiple affiliates minimizes transaction fees and achieves economies of scale.
• Better Negotiation Power – Centralized transaction volumes allow companies to direct activity to preferred banking partners and negotiate more favorable terms, including lower FX rates.

3. Technology & process optimization

• Seamless ERP & Treasury Integration – POBO connects directly to existing financial systems, ensuring real-time payment visibility and automation.
• Faster Reconciliation & Closing Cycles – Automated reconciliation processes speed up financial reporting and reduce closing cycle times.
• Advanced Payment Routing Optimization – Centralized execution determines the most cost-effective and efficient routing for payments.
• Automation of Manual Processes – End-to-end automation minimizes manual intervention, reducing errors and improving processing speed.
• Standardization Across Entities – Uniform processes across subsidiaries ensure consistency and improve internal collaboration.

4. Liquidity optimization & cash visibility

• Greater Control Over Working Capital – POBO enhances cash flow forecasting by providing real-time insights into cash movement across subsidiaries.
• Maximized Free Cash Flow – Consolidating payments enables better liquidity management, improving free cash flow for investment or debt repayment.
• Reduction in External Financing – With improved cash positioning, companies can reduce reliance on external credit facilities.
• Optimized Liquidity Management – Centralized payments allow for greater consolidation of funds, reducing idle cash at affiliates and enabling better investment and debt management.
• Centralized FX Management – Managing FX centrally through POBO minimizes the need for affiliates to hold costly foreign currency accounts or pay for currency conversions individually.
   

Frequently asked questions (FAQs) about POBO

1. Do I have to set up a whole comprehensive in-house bank to be able to facilitate efficient POBO processing?

No, you don’t need a full-scale in-house bank to implement POBO. Many organizations start with a payment factory, centralizing payment execution without the broader scope of intercompany loans or FX hedging. This approach still delivers key benefits like reduced transaction costs, streamlined bank relationships, and optimized payment routing. As your needs evolve, you can scale into more comprehensive in-house banking functions.

2. Can all legal entities participate in in-house POBO processing?

No, participation in POBO varies by country and currency. Asia and Latin America often have stricter regulatory environments, making POBO adoption more complex compared to Western Europe and the United States. Similarly, Eastern Europe can pose additional compliance challenges. Restrictions may include limits on cross-border payments, currency controls, and local regulatory reporting requirements. Each legal entity must be assessed based on its jurisdiction's rules to determine POBO feasibility.

3. Is Serrala experienced in delivering POBO projects for large multinational corporations?

Yes, Serrala has over 25 years of experience delivering POBO solutions for global enterprises. We’ve led SAP in-house banking deployments since the original In-House Cash solution launched in 1999. Our strong relationship with SAP ensures we remain at the forefront, and we’re now leading the deployment of SAP’s Advanced Payment Management In-House Banking (APM-IHB), the next generation in-house banking solution. We’ve successfully implemented POBO solutions for iconic multinational organizations, optimizing both domestic U.S. payments and global international payment structures with increased automation, visibility, and control.

4. How does POBO impact local bank relationships and accounts?

POBO allows companies to rationalize their bank accounts, reducing the number of local accounts needed for affiliates. Instead of each subsidiary maintaining its own foreign currency accounts, payments are routed through centralized accounts owned by the in-house bank. While this may reduce direct engagement with some local banks, it strengthens the company’s overall negotiation power with strategic banking partners and simplifies cash management.

5. What technologies are needed to support POBO?

Centralized collections can introduce regulatory complexities, particularly around cross-border receipts and tax implications. However, ROBO often improves compliance by standardizing processes and centralizing expertise. Thorough upfront analysis of legal requirements ensures regulatory risks are minimized.

6. Does POBO increase regulatory risks?

Centralizing payments can increase complexity around regulatory compliance, especially in jurisdictions with strict cross-border payment regulations or currency controls. However, POBO structures often improve compliance by standardizing processes and centralizing expertise, ensuring consistent adherence to global and local regulations. A thorough upfront analysis of legal and tax implications is essential when designing POBO structures to mitigate regulatory risks.

7. Can POBO help reduce foreign currency exposure?

Yes, POBO helps consolidate foreign currency transactions, enabling centralized management of FX exposures. By routing payments through centralized accounts, companies can take advantage of natural hedging opportunities and optimize FX rates. This reduces the need for affiliates to maintain separate foreign currency accounts and minimizes exposure at the local level.

8. How quickly can a POBO solution be implemented?

The implementation timeline can vary tremendously depending on the organization’s size, complexity, scope, objectives, and existing technology infrastructure. A phased approach is common method of deployment that can enable a company to ramp up with a pilot region or set of affiliates quickly to gain knowledge, experience, and confidence before scaling more broadly. Leveraging standardized, tightly integrated, and highly advanced tools like SAP APM-IHB, SAP MultiBank Connectivity, and Serrala’s FS² AutoBank solutions can help accelerate deployment.