Three Towers, Not Two: In-House Banks, Payment Factories and Captive Banks

By François Masquelier, CEO of Simply Treasury, Chairman of ATEL and Chair of EACT. 14 July 2026.

The distinction between an In-House Bank and a Payment Factory is now reasonably well understood among corporate treasurers: one is an internal quasi-banking structure for group liquidity, the other an operational hub for payment processing. What is far less understood, and far more likely to cause real confusion with auditors, regulators and rating agencies, is a third structure that exists in a specific set of industries: automotive, agricultural equipment, construction equipment and logistics. This is not a niche question: captive lenders now originate a majority of new vehicle financing in some markets, and equivalent structures exist across agricultural, construction and logistics equipment, wherever a manufacturer's product carries a large enough ticket price that financing becomes part of the sale itself. When a manufacturer finances the purchase of its own products by external customers, through vehicle loans, equipment leases or dealer floor-plan financing, it is not running an In-House Bank. It is running something else entirely, and calling it an “in-house bank” is not just imprecise, it is potentially misleading to anyone reading the group's regulatory filings.

Two structures, briefly revisited

An In-House Bank is an internal structure, typically a dedicated legal entity or functional centre, that replicates for group subsidiaries the services an external commercial bank would otherwise provide: intercompany current accounts, multi-currency cash pooling, FX exposure consolidation and intercompany netting. It is not a regulated financial institution, precisely because it serves only the group's own subsidiaries. A Payment Factory is an operational architecture, not a legal entity, that centralises and automates payment processing across the group, optionally through Payment on Behalf Of and Collection on Behalf Of mechanisms. Both structures are explicitly excluded from payment institution licensing under PSD3's amended Article 2.2(m), because both operate strictly within the group.

The third structure: captive finance companies and captive banks

The moment a treasury structure starts financing parties outside the group, a customer buying a tractor, a dealer financing inventory, an equipment lessee, it leaves the “in-house” category entirely. The established term is a captive finance company: a subsidiary wholly owned by a manufacturer, created to finance the sale, lease or dealer inventory of that manufacturer's products. Ford Motor Credit finances Ford vehicles; Caterpillar Financial Services finances Caterpillar equipment; John Deere Financial finances Deere agricultural and construction equipment. Captive lenders held more than half of new vehicle financing in the US in early 2026 (Experian). The rationale differs from the other two structures: an In-House Bank recaptures fees and FX margin that would otherwise flow to external banks; a Payment Factory recaptures control over process and fraud risk; a captive finance company recaptures financing margin on the parent's own sales, and does something an external bank never would: subsidise the interest rate on a loan or lease (a practice known as subvention) to move a slow-selling model or hit a quarterly sales target, because the manufacturer's economics extend beyond the loan itself to the underlying product margin.

Crucially, a captive finance company does not automatically need a banking licence: many operate as non-bank lenders, funding themselves through the parent, securitisation or wholesale debt markets. But a meaningful subset does obtain one, becoming what should properly be called a captive bank: a captive finance company authorised as a credit institution under the applicable banking law, typically to access deposit funding, central bank refinancing or EU banking passporting. RCI Banque, Renault's captive, has held a French banking licence since 1991. Volkswagen Bank GmbH and Toyota Kreditbank GmbH operate under German banking licences. John Deere Bank S.A., licensed in Luxembourg since 2000 and supervised by the CSSF, finances Deere's agricultural, construction and forestry equipment customers across Europe from a single regulated entity. Whether to pursue a licence is a genuine strategic choice: it brings access to central bank refinancing and EU passporting rights, against the trade-off of full prudential supervision (capital requirements, liquidity coverage ratios and a banking conduct regime) that an unlicensed captive finance company does not carry.

“An In-House Bank recaptures fees from your own subsidiaries. A Captive Bank recaptures margin from your own customers, and it may need an actual banking licence to do it legally.”

François Masquelier, Chair of EACT

Regulatory definition. Under Article 4(1) of the EU Capital Requirements Regulation, a “credit institution” is any undertaking whose business is to take deposits or other repayable funds from the public and grant credit for its own account. A captive finance company that meets this test is a bank in the full regulatory sense, regardless of who owns it. The EBA has separately addressed the treatment of captive finance companies within non-financial corporate groups (Single Rulebook Q&A 2013_364).

Naming pitfall. Resist the temptation to call this structure a “corporate bank.” That term already means the corporate and wholesale banking division of an ordinary commercial bank (as in “BNP Paribas Corporate Bank”). Reusing it for a manufacturer's captive would recreate the exact confusion this article is trying to resolve.

The three towers, side by side

In-House Bank

1. Nature: internal quasi-bank, unregulated
2. Who it serves: group subsidiaries only
3. Regulatory status: not a financial institution
4. Licence required: none
5. Real examples: internal treasury centres
6. Core purpose: recaptures intercompany fees and FX margin

Payment Factory

1. Nature: operational payment hub, unregulated
2. Who it serves: group entities' payment flows
3. Regulatory status: excluded from PSP licensing (PSD3 Art. 2.2(m))
4. Licence required: none
5. Real examples: standard bank-connectivity hubs
6. Core purpose: automates and controls payment flows

Captive Finance Company / Captive Bank

1. Nature: financial subsidiary, may be a regulated credit institution
2. Who it serves: external customers and dealers of the parent's products
3. Regulatory status: credit institution under CRR Art. 4(1) if deposit-taking
4. Licence required: often, though not always (many operate unlicensed)
5. Real examples: RCI Banque, Volkswagen Bank, Toyota Kreditbank, John Deere Bank S.A.
6. Core purpose: recaptures financing margin on sales; enables subvention

Why the terminology matters

This is not a semantic quibble. A group that describes its captive bank internally as an “in-house bank” risks two concrete problems. First, with auditors and regulators: a credit institution is subject to prudential capital requirements, deposit guarantee scheme obligations in some jurisdictions, and full banking supervision, obligations an unregulated IHB does not carry, and imprecise language in board papers or public disclosures invites exactly the scrutiny a treasurer wants to avoid. Second, with the group's own teams: conflating the two structures makes it harder to keep the wall between them properly resourced and governed; an In-House Bank's netting and pooling activity should never be commingled, operationally or in reporting, with a captive bank's external lending book. In practice, audit how the term “in-house bank” is used across treasury policy, board papers and external communications, and correct it wherever it actually refers to a licensed captive bank or an unlicensed captive finance company financing external parties.

Conclusion: three different questions, not three stages

An In-House Bank and a Payment Factory answer how a group manages its own liquidity and payments. A captive finance company, and where licensed a captive bank, answers a different question entirely: how a group finances the customers who buy what it makes. The three are not stages on the same maturity ladder; a mid-market industrial group with no consumer or dealer financing need will never require a captive bank, no matter how sophisticated its IHB and Payment Factory become. What treasurers in automotive, agricultural, construction and logistics equipment sectors need is precise vocabulary: In-House Bank for the internal structure, Payment Factory for the payment architecture, and captive finance company or captive bank for the entity that finances external customers, licensed or not. As financing increasingly becomes part of the product itself, more industrial groups will face this question for the first time, and the ones who name the structure correctly from day one will spend far less time later explaining to their board what it actually is.

“Getting the names right is not pedantry. It is what keeps a board presentation, a regulatory filing, and a rating agency conversation from being about the wrong risk entirely.”

François Masquelier, CEO of Simply Treasury

References

1. Experian, “State of the Automotive Finance Market,” Q1 2026.
2. RCI Banque, company profile and banking licence history (licensed 1991), Renault Group / Mobilize Financial Services.
3. John Deere Bank S.A., regulated by the CSSF, Luxembourg, licensed 2000.
4. Regulation (EU) No 575/2013 (Capital Requirements Regulation), Article 4(1), definition of “credit institution.”
5. European Banking Authority, Single Rulebook Q&A 2013_364.
6. Simply Treasury, “One Factory, One Bank, or Both? Demystifying In-House Banks and Payment Factories,” April 2026.