Virtual credit cards are one of the more flexible electronic payment methods available, and the world continues its steady march toward greater digital payment use. These 16-digit credit card numbers are created for one-time purchases at set amounts, and the convenience, security and speed they provide are allowing them to take hold in the B2B payments space. Virtual cards can improve accounts payable (AP) processes, benefiting both buyers and suppliers by streamlining day-to-day payments, and providing greater control over cash flows. They also offer more safeguards against fraud than traditional business credit cards.
The following Deep Dive explores how virtual cards benefit B2B payments, especially among smaller firms, which have limited resources. It also examines what might be slowing virtual cards’ adoption in the space.
B2B Virtual Card Purchasing On The Rise
Virtual card adoption is also being driven by exploding mobile device usage, as the payment method can only be used for designated scenarios, such as AP payments and online or mobile purchases. Transaction credentials on virtual cards are randomly generated with tokenization, unlike prepaid or physical plastic cards. The cards are also linked to checking or other payment accounts, and expire at designated times. Many AP departments still rely on checks to settle B2B invoices, however, despite the speed and convenience that payment methods like virtual cards offer. Such outdated, manual methods are inefficient, and some studies have shown that an increasing number of AP professionals are willing to give up the paper chase.
PYMNTS reported that 46.4 percent of AP professionals would like to implement electronic invoice solutions, and that 22.9 percent would like to integrate ePayables with virtual cards into their B2B operations. Such sentiments are fueling strong growth in the use of corporate credit and virtual cards, with virtual card spend projected to grow to $355 billion by 2022 — up from $136 billion in 2017, marking a 21 percent compound annual growth rate (CAGR).
Streamlining The AP Purchasing Process
Integrating virtual cards into the AP payment mix is relatively easy. Businesses can implement solutions that work with their accounting or ERP systems, create efficiencies and working capital optimization opportunities, and enable smooth B2B payments by working with financial institutions (FIs), FinTech firms and major card networks.
Virtual cards can also be used when employees are looking to make company purchases outside traditional supplier invoice payments. These workers can make requests to purchasing managers, who then use those platforms to create virtual cards. Card details are then inputted at checkout to complete purchases. Companies can make as many cards as they wish, track transactions in real time and limit the amounts spent, giving AP departments more control over corporate spending.
These cards can help companies optimize working capital as well. Such payments are executed instantly, allowing AP teams to hold on to cash for longer periods of time, optimizing Days Payable Outstanding and enabling them to collect more returns on that working capital.
In addition, virtual cards can make thousands of dollars in rebates available to companies that use them often. For example, a firm that earns 0.5 percent cash back on virtual card invoice payments will get $5,000 back for every $1 million spent. Rebates are also a great pull for small companies, which use credit cards heavily, accounting for $430 billion in annual card spend.
Virtual cards and other digital payment options free up AP staff from the cumbersome tasks of printing, signing and mailing paper checks to suppliers and vendors.
Companies can also better manage spend with virtual cards. Each card is valued at a specific amount for individual suppliers, which can process the payments the same way they would for traditional credit cards. Settlement is instantaneous, though, granting AP departments real-time cash flow data, and improving strategic planning. Virtual card numbers (VCNs) make payments easily trackable, and enable reliable data capture, helping merchants to reconcile payments. Quick settlement ultimately helps strengthen relationships with suppliers as well.
How Security Drives Virtual Card Use
The biggest draw of virtual cards is their enhanced security, compared to other credit cards and payment methods. Online fraud is a massive financial headache that could reach $25.6 billion this year. Traditional credit card users expose their personal information whenever they make payments in person or online, and vendors often store this information, which could potentially expose it to hackers. Virtual cards do not have any hard data that can be stolen, and their predetermined limits prevent overcharging.
Virtual cards’ fraud-busting capabilities are especially attractive to subscription companies, which often see recurring charges victimizing customers who did not authorize or no longer need certain services. These cards’ limited time usage eliminates that risk.
Fear Of Higher Merchant Fees Worry Suppliers
Some challenges still remain to swift and smooth virtual card adoption in the B2B space, despite the tangible benefits. Some firms are concerned about the potential disruption to their existing systems, or the creation of one-off processes, but much of the delay comes from the supplier side. Vendors are concerned about the higher merchant fees that come with these electronic AP solutions — charges that can reach 2.5 percent of each transaction.
Suppliers stand to benefit from education around how virtual card adoption will enable faster payment receipt, improve cash flows, and reduce time and money spent on chasing after late or missing funds. Some virtual card solutions enable suppliers to choose how they receive electronic remittance information, too, which can allow for straight-through payment reconciliation.
The shift to virtual cards is critical to the digital payment innovations sweeping the B2B space. Using virtual cards for B2B transactions has tangible benefits for companies and suppliers alike, and those that do not implement them are likely to miss out on ample cash collection and cost-saving opportunities.