B2B Payments

How AP Can Tip The Scales In Favor Of Virtual Cards

In the world of payments, rife with friction, there is no such thing as a silver bullet. Even when technologies come close to addressing multiple challenges that exist today when sending, receiving and reconciling B2B payments, those benefits typically come with a cost whether it be the interchange fees of cards or the burden of replacing legacy infrastructure.

Corporate payments have a particularly high barrier to overcome: resistance to change. Recent months have seen corporate payment heavyweights investing further into encouraging that change, often promoting the use of virtual cards, driving momentum for a payment technology that can tackle multiple points of friction in accounts payable (AP) at once.

"The beauty of the virtual card is that it's the only payment modality today that solves the four biggest challenges in [the] payment process: speed, good funds, reconciliation [and] fraud risk," explained Blair Jeffery, chief operating officer at payments processing company Noventis.

Indeed, these benefits are being highlighted in the context of B2B payments as issues like delayed supplier payments, insufficient funds penalties, challenges of reconciliation with manual data entry and rising losses linked to B2B payments fraud create even greater urgency for the industry to modernize.

According to Jeffery, issues like bounced checks or non-sufficient funds (NSFs) linked to ACH can "wreak havoc" for the supplier side of the transaction. Virtual cards, on the other hand, do not require the full funds to be in the sender's account at the time of payment, and vendors are not penalized if the sender cannot pay off the bill.

Of course, there's the issue of lag time with checks that can be a significant pain point for suppliers and one that is immediately addressed for suppliers while still providing float for the payer. In terms of reconciliation, he explained, virtual cards provide a unique number for each transaction, enabling automated matching and reconciliation processes. Finally, virtual cards can address risks related to fraud that even ACH cannot tackle.

"Storing ACH, even routing [or] account numbers, in ERP systems is incredibly risky," he said. "Data breaches allow for your customers' data to be captured and [used]. The liability to a company for those breaches is high, and getting higher every day."

Virtual cards, meanwhile, can be used only for certain transactions, thus rendering a card virtually useless if stolen.

Noventis, which announced last October that it would be acquired by commercial payments company WEX, is now looking to introduce the virtual card's benefits to the real estate sector through a partnership with AP automation company Nexus Systems. It's not the first time that Nexus has collaborated to promote virtual cards in the industry. Last September, the firm announced a deal with Visa that similarly focused on integrating virtual cards for the real estate industry's AP needs.

Together, Noventis and Nexus will offer real estate businesses access to virtual cards, integrated into their accounts payable for streamlined payments to vendors, like utility companies or contractors. Key to the collaboration is addressing some of the major pain points on the accounts receivable (AR) side, said Jeffery, including linking vendors with the data they need to manage and reconcile their transactions.

Yet, the undeniable truth remains: There is no silver bullet, and that includes the virtual card.

In the case of B2B payments, the biggest drawback with virtual cards is the cost for vendors to accept the tool i.e., the interchange fee. No payment system is entirely impenetrable, either, so security risks remain.

According to Jeffery, the benefits of virtual cards far outweigh the costs associated with the payment rail. A single instance of check fraud that cheats a business out of tens of thousands of dollars will quickly recognize that the cost of accepting a virtual card is worth it, yet adoption has a long journey ahead in the B2B payments realm.

One key area that Jeffery said needs improvement is straight-through processing (STP), which can accelerate payment processing times, reduce interchange fees and limit fraud risks by streamlining the movement of data.

"Furthering the current straight-through processing methodology will undoubtedly need to see innovation," he said. "The current standards of STP are not straight-through for all parties ... the company that creates it has a major advantage."

Virtual cards have other areas to improve upon, too, like making it easier for vendors to retrieve payment card data, and input that information into their own systems. However, as with so many other industries, the real estate sector must press forward and digitize (a survey released last year from MRI Software found nearly half of real estate companies continue to rely on paper and spreadsheets to manage properties).

So, while virtual cards may address many points of friction for real estate firms' AP processes, the industry experiences the same hurdle as others when it comes to taking the leap toward digitization.

"Anytime a process is changed, augmented or eliminated, there is hesitancy," said Jeffery. "The real question is whether the efficiency improvements and value-adds outweigh that hesitancy."



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.