One Factory, One Bank — or Both?
Demystifying In-House Banks and Payment Factories: Two Concepts TooOften Confused, Too Rarely Combined
Setting the Scene: A Confusion with Real Consequences
Ask ten treasurers to define an In-House Bank (IHB) and a Payment Factory, and you willlikely receive ten different answers — some partially overlapping, others treating the two assynonyms.They are not.This confusion is not merely semantic. It has operational,regulatory, and strategic consequences for any multinational group seeking to centralise itstreasury function.At the EACT Summit 2026, this question was placed at the heart of a dedicated session,moderated by the author, bringing together practitioners from advisory and corporatetreasury. The ambition was straightforward: cut through the noise, establish clear definitions,and provide a practical framework for treasurers navigating their centralisation journey. Thisarticle distils the key analytical threads from that discussion
Two Different Animals — Properly Defined
The In-House Bank: Internalising the Banking Relationship
An In-House Bank is not a bank in the regulatory sense.It is an internal structure — typicallya dedicated legal entity or a functional centre within a group entity — that replicates, for thebenefit of group subsidiaries, the services that external commercial banks would otherwiseprovide.These services include: intercompany current account management (with limits, interest, andperiodic settlement); multi-currency, multi-entity cash pooling and internal funding via termloans or revolving intercompany facilities; consolidation of FX exposures to enable nettingand centralised external hedging; and intercompany payment netting. The economicrationale is clear — the IHB recaptures fees, spreads, and FX margins that would otherwiseflow to external banks, while giving the group treasurer full visibility and control over internalliquidity.The IHB requires a meaningful legal and tax infrastructure: transfer pricing documentationfor intercompany loans and guarantees, compliance with EMIR for intercompany derivatives,and — in some structures — EMIR Refit notifications for intragroup exemptions.
The Payment Factory: Centralising the Payment Process
A Payment Factory is an operational architecture — not a legal entity per se — designed tocentralise, standardise, and automate the processing of payment instructions across thegroup.It is, at its most basic, a bank communication hub:a single layer through which allpayment instructions from source systems (ERPs, TMS, payroll, AR tools) are channelled,validated, formatted, and transmitted to banking partners.At a more advanced level — when the Payment Factory incorporates Payment on Behalf Of(POBO) and Collection on Behalf Of (COBO) mechanisms — it becomes deeply integratedwith the IHB. The POBO model allows the IHB entity to execute payments from its owncentralised bank accounts on behalf of subsidiaries, recording the resulting intercompanyliability in real time. Without this intercompany accounting layer, the Payment Factory modelloses scalability and auditability.The distinction between a basic Payment Hub (connectivity and format standardisation) anda full Payment Factory (POBO/COBO-enabled, IHB-integrated) is critical for implementationscoping.
"The Payment Factory is the engine room. The In-House Bank is the treasuryoperating model that determines how the engine is fuelled and steered."
Side-by-Side: IHB vs. Payment Factory
The table below summarises the key dimensions across which the two structures differ —and where they interact:
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Where Do You Stand? The Payment Services Maturity Ladder
Neither an IHB nor a Payment Factory is built in a day. The journey toward treasurycentralisation follows a progression that is best understood through a maturity ladder — aframework that allows treasurers to benchmark their current model and define a realistictarget state.
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Key observation: According to the 2025 PwC Corporate Treasury Survey, 67% of companieswith revenues above $10 billion have implemented an IHB, and 59% a Payment Factory.Strikingly, the fastest growth in Payment Factory adoption is occurring among mid-sizedcorporates (below $1 billion revenue) — up from 21% in 2021 to 37% in 2025.Thedemocratisation of centralised payment infrastructure is well underway. There is no universally correct stage to target. The right model depends on the group'streasury organisation (headcount, skills, systems), banking landscape (number of banks andaccounts, geographies), and appetite for legal and operational complexity. What is clear isthat moving up the ladder delivers compounding financial and control benefits: reducedbanking fees, improved cash visibility, lower fraud risk, and greater FX efficiency.
The Regulatory Dimension: PSD2's Uncomfortable Grey Zone —and How PSD3 Fixed It
For years, European Payment Factories operated in a regulatory grey zone created byArticle 2.2(m) of PSD2.This provision, intended to exclude intragroup paymenttransactions from PSP licensing requirements, was interpreted inconsistently acrossMember States.Some national regulators required Payment Factories to obtain paymentinstitution authorisation; others did not. The same legal entity could be regulated orunregulated depending solely on its country of incorporation — a textbook case of regulatoryarbitrage undermining the single market.EACT engaged directly with the European Commission to seek a legislative resolution. Theresult came in June 2023 with the Commission's Payment Services Regulation (PSR)proposal, and was confirmed in the final PSD3 text: the amended Article 2.2(m) nowexplicitly covers the redistribution of funds received from external third parties on behalf ofgroup entities, and the collection of both payment orders and payment funds for onwardtransmission. Payment Factories are fully codified as intragroup operational tools — notpayment service providers.Critically, the amended text adds an anti-circumvention clause: the exclusion cannot be usedto evade AML/CFT rules or PSP authorisation requirements. Legitimate Payment Factoriesare fully protected; abusive structures are not. A level playing field is restored across all 27Member States — a significant advocacy win for the European corporate treasurycommunity.
The Questions Treasurers Must Answer Before They Start
Before embarking on an IHB or Payment Factory project, the following questions —systematically addressed during the EACT Summit session — provide a robust diagnosticframework:
• Is the primary objective liquidity optimisation (IHB) or payment process efficiency (Payment Factory), or both?
• What is the current number of banking relationships and external bank accounts? Isrationalisation feasible and desired?
• Is POBO legally and tax-compliant in all jurisdictions where the group operates?
• Does the existing TMS support an IHB module with intercompany accountmanagement and netting capabilities?
• Is the group's ERP landscape sufficiently standardised to support centralisedpayment file generation?
• What is the transfer pricing policy for intercompany financing, and is it documented to BEPS-compliant standards?
• Is there executive sponsorship at CFO level for the complexity and changemanagement required?
These are not rhetorical questions. Each one represents a potential implementation blockerthat, if underestimated, can derail even well-resourced projects.
Conclusion: Combine Both — Sequentially, Not Simultaneously
The central message that emerged from the EACT Summit session deserves to be statedplainly: an IHB and a Payment Factory are complementary architectures, not competingalternatives. The optimal end-state for a large multinational is one in which a well-governedIHB sits at the centre of the group's financial operating model, supported by a PaymentFactory that automates and controls all payment and collection flows through POBO andCOBO mechanisms.But the sequence matters. Most groups should implement a basic Payment Hub first—standardising formats, reducing bank channels, eliminating local e-banking platforms —before layering in POBO and the IHB infrastructure. Attempting to build the full architecturesimultaneously is technically feasible but organisationally risky.The maturity ladder is not merely an academic construct. It is a sequencing tool. Knowwhere you are. Define where you want to go. And resist the temptation to leap three stagesat once — the casualties of over-ambitious treasury transformation projects are numerous,and the post-mortems are remarkably consistent in their findings.