Despite the speed, efficiency and security of virtual commercial cards for B2B payments, adoption remains low compared to other payment rails. ACH appears to be winning the race to replace checks in supplier payments, while, according to recent data from NACHA, cards account for just about 11 percent of payments received.
As the $120 trillion in globalB2B payments goes digital, the growth of cards in this space is also expected to be outpaced by ACH, and yet, commercial cards are the subject of immense innovation, particularly when it comes to virtual card (v-card) technology.
Supplier acceptance — or lack thereof — of commercial and virtual cards is a significant hurdle to broader adoption of cards in B2B payments. Vendors may cite the cost associated with card acceptance and other logistical issues, like disruptions to accounts receivable processes, as the reasons why they shy away from card acceptance. But according to Dean M. Leavitt, founder and CEO of B2B payments company Boost Payment Solutions, those perceptions are not necessarily rooted in reality — especially when considering the progress the virtual card industry has made in easing friction for both buyers and suppliers.
Leavitt recently told PYMNTS that there are an array of reasons why commercial card adoption lags, both “concrete” and “less tangible.”
“Probably the biggest intangible reason is the perception of costs and the hassle factor associated with accepting virtual cards,” he explained, adding that today, there are innovative products, programs and pricing constructions that make v-card acceptance more attractive to suppliers.
“The financial consideration is one that is more of a myth than it is a reality,” said Leavitt. “In fact, we can often reduce the supplier’s cost of accepting a card payment to be competitive with ACH and check, especially if they’re currently offering early pay discounts.”
Aside from costs, suppliers tend to assume there may be security risks associated with card acceptance. Again, said Leavitt, the card industry has addressed this concern through the advent of the virtual card itself, as well as through the mechanisms that push payments to vendors, which are commonly referred to as Straight Through Processed (STP) payments.
“From a risk perspective, again, this is more of a perception issue than reality,” Leavitt explained. “Corporate entities generally understand the risk associated with having sensitive data floating around their enterprise and they understandably don’t want that, but new technologies are now available that completely eliminate those risks.”
With STP payments, vendors don’t have access to card data at all, Leavitt noted. Further, virtual card technology means one-time card numbers are generated for a specific value, meaning even if that card data were to be stolen, hackers wouldn’t be able to use it for other purchases anyway.
“As far as risks associated with B2B payments are concerned, commercial cards have a much safer profile than other payment modes,” added Leavitt.
Checks, of course, are notorious for their link to fraud. The Association for Financial Professionals’ (AFP) 2017 Payments Fraud and Control Survey found checks to be the No. 1 most popular vehicle for payments fraud, followed by wire transfers; 71 percent of businesses surveyed said they had experienced either attempted or actual check fraud.
But ACH payments aren’t immune to fraud either, Leavitt said. The AFP’s report found more than a third of corporate survey respondents experienced ACH fraud. Leavitt noted the exposure of account information required for ACH transactions exposes suppliers to fraud on multiple fronts.
“As a supplier, if you’re getting paid via ACH, your depository information is currently housed by all of your customers, so there is a risk there,” he said. “By accepting cards, that risk goes away. Your customers no longer have that information.”
There are more benefits for suppliers to accepting cards — and virtual cards, in particular — than just avoiding the potential fraud associated with other payment rails. Leavitt said many of these benefits are relatively new and not yet available on all acceptance platforms, as the card industry continues to address concerns and points of friction associated with card-based B2B payments through technology and process improvement.
Front and center are benefits like faster payments and easier reconciliation.
“Very often, when companies migrate their AP spend from other payment methods over to cards, they will commit to pay their suppliers sooner,” Leavitt said. “This allows the suppliers to reduce their DSO (Days Sales Outstanding) often significantly. But equally important is the fact that other payment methods don’t necessarily provide suppliers with the same level of remittance data for automated reconciliation that can be provide with a properly processed card transaction. Paper checks, wires or ACH payments are not typically accompanied by enhanced remittance data or the ability for the supplier to ingest it into their ERP platform in a such a way that allows them to use it to manage their enterprise. This is where commercial cards shine.”
The virtual card industry is also moving toward automated data entry, making it far easier for suppliers to accept the payment rail by nixing the requirement of manually entering virtual card numbers into their accounts receivables systems.
Considering these benefits, it’s questionable why commercial card adoption remains relatively low. But researchers anticipate growth: Visa, for example, found that average monthly spend on virtual cards by corporate buyers nearly tripled between 2011 and 2015, and nearly a third of businesses not currently using a virtual card said they planned to adopt the tool within the next three years.
Corporate buyers are pushing for broader acceptance too: Deloitte recently found that the ability to automatically integrate payment data into financial and ERP systems is also a top motivation for corporate buyers to adopt v-cards. Businesses can also pay their suppliers faster while still taking advantage of extended Days Payable Outstanding (DPO) and rebates linked to their card programs.
As the size of a business grows and the number of B2B transactions increases, Leavitt added that companies have an even greater incentive to switch to virtual cards to make payments.
“If you’re a large company that pays a lot of bills, ideally you want to be able to pay all of your bills through your ERP platform,” he said. “If you are integrated into a virtual card platform, you can go through the invoice approval process and hit a button that sends out a payment file to the bank, which can then use that file to spin up a virtual card in a completely automated way. It’s much more efficient and, ultimately, a lot less expensive than other payment methods.”
Growing awareness of these benefits, as well as of the risks associated with other payment rails like check and ACH, are working in favor of the commercial and virtual card industry, Leavitt said. So, while adoption in B2B payments may not necessarily be where the sector would like, he said progress is being made.
“I agree that adoption hasn’t been nearly as quick and deep as people had expected a couple of years ago,” he said. “But as technology plays more of a featured role in payments, and as the payments industry becomes much more sophisticated, there are more and more reasons for companies to use and accept commercial cards.”
Companies like Boost Payment Solutions, he continued, have a massive opportunity to not only shift existing B2B payments made via ACH or wire over to card, but to capture the trillions of dollars worth of non-electronic payments being made between businesses over to the card rails.
The B2B card industry has already proven that this will not come easy, but according to Leavitt, Boost is perfectly positioned to take on the challenge. “This is a very exciting time for the industry,” said Leavitt. “The opportunities that exist are profound, but challenges do remain and I believe that over the next couple of years, we’re going to see enormous fortunes made by companies that understand the marketplace, understand the players in it and figure out how to eliminate the friction.”