B2B Payments

Lifting The Veil On Virtual Cards’ Shortcomings


Here’s a dirty little secret about the B2B payments industry that Finexio CEO Ernest Rolfson told PYMNTS: Virtual cards are a letdown.

Virtual payments are supposed to be a way for businesses to transact with each other electronically, securely and with access to more payment data. Among its biggest selling points: Virtual payments are cheaper than paper-based tools, like checks, and are touted as a way to nix the painstaking task of writing out a check, sticking it in an envelope and sending it via post.

As it turns out, Rolfson said, virtual payments often involved that exact process.

“As it relates to virtual cards and virtual payments, the overwhelming majority — like 99 percent or so — is delivered either by paper, via mail, via fax or the sort of electronic delivery method out there is through secure email,” he explained. “Either through a direct email where there is literally an image of a credit card in an email or through some sort of portal where a supplier that is trying to get paid has to long on, get a card number off the screen and key it into their terminal.”

Even virtual card technology, which proponents say is safer than other B2B payment rails because it creates a single-use card number designated for a specific transaction with a specific supplier for a specific value, involves paper, with data from the virtual card being faxed over to the supplier so they can manually enter it into their systems and get paid.

Before Rolfson started Finexio, he worked at a payment cycle management company for the health care industry.

“We did $3.5 billion a year in virtual payments,” he said. “And 100 percent of those $3.5 billion dollars were printed card images on a piece of paper, put into envelopes and mailed to hundreds of thousands of small businesses across the country. People don’t really like that.”

Last week, Finexio announced a seed funding round to the tune of $1 million. It offered the company a chance to publicize its mission: lessen the manual and financial burden of so-called virtual B2B payments.

“Not only are these suppliers forced to undergo a costly manual effort to receive their money, but they are also forced to pay a 3.5–5 percent fee for processing costs,” Rolfson said in a statement announcing the funding.

The startup is looking at how it can help businesses guide transactions on and off certain payment rails based on what’s the most efficient and cost-effective for buyer and supplier.

According to the CEO, virtual cards have fallen short of their lofty promises largely because the industry fails to talk about them.

“It’s not that interesting to talk about for most people, I guess,” Rolfson said.

But he added that keeping B2B payments manual keeps profits high for financial service providers, who are often more concerned with keeping a lower volume of high-fee transactions within their business than shifting over to lower-fee services that could lead to higher volumes of transactions.

Rolfson claims these firms aren’t taking the time to actually calculate that lower-fee, higher-volume business models would lead to higher profits than if they stayed with the current status quo.

“A lot of large, established companies would rather just get 15–20 percent growth and miss 80 percent of the transactions they could do because they’re suppressing something much more efficient and at a lower cost,” he explained.

Reluctance to provide more efficient and cheaper alternatives, he said, stems from a misguided fear of self-cannibalization.

But the market is undergoing a shift, Rolfson explained, and it can be seen in a variety of places.

For instance, suppliers, he said, are largely driving the demand for faster, cheaper B2B payment tools because they’re tired of their cash flow struggles.

“There’s been more of a catalyst on the supplier side, wanting to get paid faster and more efficiently,” he explained. “I think they’re really suffering.”

Other areas of the financial services space also show signs of a demand for better B2B payment solutions. Rolfson pointed to the alternative lending industry and companies like OnDeck and Lending Club, whose growth is all based on small business demand.

“They wouldn’t be taking these high interest rate loans just to do it,” he said. “They’re doing it because they need money; they need to get paid faster.” The same goes for faster payments initiatives, he added, which also see their roots in the demand for businesses struggling to manage cash flow as suppliers look for better ways to get paid.

With seed funding in hand, Finexio is still working on its roadmap. Rolfson described the startup as still in a sort of stealth mode as it speaks with corporates about what they need; he said many potential clients have expressed interest in using Finexio for trade finance transactions, for example, and boosting business intelligence and payment data analytics capabilities.

What Rolfson is sure of, though, is that Finexio isn’t looking to replace or reshape the payments industry but rather use the existing infrastructure that’s out there to improve B2B payments.

“The word is getting out,” he said of the rising interest in such solutions. “Businesses are always looking to cut costs and make things more efficient.”


Featured PYMNTS Study: 

With eyes on lowering costs to improving cash flow, 85 percent of U.S. firms plan to make real-time payments integral to their operations within three years. However, some firms still feel technical barriers stand in the way. In the January 2020 Making Real-Time Payments A Reality Study, PYMNTS surveyed more than 500 financial executives to examine what it will take to channel RTP interest into real-world adoption. Here’s what we learned.

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