B2B virtual cards are stuck in the past
From workforce expenses to high value transactions between buyers and suppliers, the market that supports the initiating and acceptance of card-based business payments is big and growing.
According to Mastercard, Visa and American Express, commercial card payments hit a five-year high of $2 trillion in 2018. Companies that cater to these types of transactions rightly see opportunity and are investing in new solutions, like virtual cards, which simplify the management of a company’s payments, increase usability through mobile apps and online portals and reduce operating costs, all through a range of powerful new digital features.
Yet some businesses remain hesitant to adopt virtual card technology. Why? It’s a problem of perception. Businesses—finance departments in particular—associate change with risk and, fearing technical complexity, often shy away from adopting new tech. This is a mistake; there are big value gains to be had with comparably little cost and disruption.
Essentially, a virtual card functions in the same way as a normal credit or debit card, minus the plastic. Making this leap gives companies far more than a bit of extra space in their staff’s wallets. By going digital, the cards themselves can be endlessly reissued, and the rules that govern them quickly reprogrammed, giving a company almost limitless flexibility to shape its spending power to suit its goals.
This means that, unlike plastic cards, virtual cards can be single use. A new card, with a new card number, can be created for every transaction—and still each maintain a direct link back to a single, central bank account for easy and transparent accounting.
One key business advantage of using virtual cards lies in their ability to significantly reduce the risk of fraud. The creation of a new virtual card for each transaction means that, even if sensitive card data is intercepted, it cannot be used to make further payments. What’s more, when a virtual card is "spun up," it is created for a specific payment— referencing the exact amount, merchant, and date range. Payments outside of these parameters simply won’t be authorized, seamlessly protecting buyers from fraudulent transactions without impacting the user experience.
Furthermore, the authorization framework of the unique virtual card number (VCN) makes payments easily trackable and provides all of the data needed to help merchants reconcile payments with account receivables,increasing operational efficiency on the supplier side.
Virtual cards are uniquely valuable in B2B contexts. Although consumer products were brought to market, the inability to use them for in-store payments and ATM cash withdrawals limited their adoption, and most issuers eventually stopped offering them. As B2B payments are rarely made via a physical terminal (i.e. face to face), this adoption barrier doesn’t exist in the corporate world, prompting many industry experts to predict that virtual card volumes would snowball. Yet, years later, we’re still awaiting the watershed.
The adoption of new financial processes is often a long-term goal. Not unreasonably, many companies, particularly enterprise-scale firms, perceive integration challenges and downtime as both likely and high-risk.
It’s certainly true that any downtime of internal payments systems would be damaging, but the use of dedicated, cloud-based APIs from specialist digital payment firms dramatically reduces these risks— such firms are solely dedicated to ensuring their digital payment systems seamlessly integrate with a business’s existing systems, and remain continuously available.
There is also a common misconception that while virtual cards benefit buyers, their impact on the suppliers is broadly negative. An often-cited issue is that of increased interchange fees borne by the company accepting payment, which can be up to 2.5% of each transaction. This perception deserves to be challenged, principally because it discounts the business opportunities that virtual cards bring to suppliers, including dramatic process efficiencies and, perhaps most importantly, improved cash flow from instant settlement.
Virtual cards from issuers like Barclays enable buyers to pay suppliers upfront via a line of credit, without affecting their own cash flow—similar to the process of paying off a consumer credit card payment.
These strategic benefits to both buyers and suppliers, while nuanced, stack up to a compelling value proposition for even the most change-resistant of firms.
The stars appear to be aligning for corporate virtual card adoption. The only real barrier remaining is that of supplier education. To ensure successful take-up, issuers, digital payment integrators and buyers alike must share responsibility for communicating their value to merchants within B2B supply chains. Accomplish this and we will finally start to see the levels of adoption this terrific payment technology deserves.