Virtual Cards Accelerate AP Automation, Leaving Checks Behind

Business-to-business (B2B) payments play a crucial role in the modern economy, with experts projecting a staggering $111 trillion in transactions between businesses by 2027.

However, the traditional methods of payment, such as paper checks and Automated Clearing House (ACH) payments, continue to impede the progress of B2B payments.

As detailed in PYMNTS Intelligence study “Unlocking Modernized Accounts Payable With Virtual Cards,” paper checks have caused numerous delays and complications for accounts payable (AP) teams, invite potential security issues and increase the risk of delays, errors and fraud.

For example, fraudsters can easily steal checks from the mail or pose as vendors to request new checks to be sent to their address. This makes it simple for them to alter the recipient field and deposit the check into their own account.

This is evidenced by the roughly 680,000 reports of check fraud that banks issued to the Financial Crimes Enforcement Network (FinCEN) last year, up from the 350,000 recorded in 2021, per an Associated Press report published earlier this summer.

ACH payments, considered a digital alternative to paper checks, have their own set of challenges.

Data from the joint PYMNTS Intelligence-Finexio study revealed that 50% of financial institutions (FIs) encountered ACH fraud in 2023, up from 28% in 2022. The challenge with this payment method is that it is difficult to reverse once processed, making any money lost to fraud irretrievable. Additionally, ACH payments offer fewer tools for resolving payment disputes compared to card networks like Visa and Mastercard.

The complications and challenges associated with paper checks and ACH payments have led businesses to seek more secure and efficient alternatives such as virtual cards, which offer ease of use and effective fraud mitigation.

In fact, outdated practices and systems often lead to delays, fraud and frustration among AP department staff, and implementing virtual cards can solve these critical challenges, the study noted, reiterating similar hurdles detailed in a 2022 PYMNTS Intelligence study.

For instance, virtual cards provide controls on a merchant level, allowing AP teams to monitor spending patterns and prevent overspending or unauthorized transactions. This level of control serves as a strong defense against fraud, as any malicious actor will be considered an unauthorized user by default. Virtual cards also offer the advantage of implementing controls before money is spent, making it easier to recoup losses compared to other transaction methods.

Fleet and mobility companies have particularly embraced virtual cards, with nearly 20% of companies in this sector adopting them compared to just 5% of other companies. Virtual cards appear to be well-suited for this industry, as they help improve transparency and security in high-volume transactions. Moreover, the controls provided by virtual cards aid in modernizing capital management for these companies, allowing them to allocate working capital efficiently and facilitate growth.

Virtual cards are rapidly supplanting traditional B2B payment systems such as paper checks and ACH payments due to their user-friendliness and robust fraud prevention. Businesses adopting these cards have reported high levels of success, enhancing capital management and streamlining AP processes. As B2B transactions surge, virtual cards present a vital solution for businesses seeking efficient, secure payment processes.

As Dan Hanks, vice president of global product development at i2c, told PYMNTS, “virtual cards are a great tool for getting all that friction out of the B2B process […] and it comes down to simplification and flexibility for companies.”