Virtual Cards Set to Transform Buyer-Supplier Relationships

Management guru Peter Drucker once said that “wherever you see a successful business, somebody made a courageous decision.” That’s the spirit behind the Certainty Project, a study from PYMNTS Intelligence highlighting the implications of decision-making in financial operations.

And according to a recent panel discussion of industry heavyweights that featured Robin Boudsocq, head of B2B Commercial Cards at Citi; Jennifer Petty, global card and comprehensive payables executive at Bank of America; Chad Wallace, executive vice president of B2B Solutions at Mastercard; and Paul Christensen, founder and CEO of Previse, virtual cards are emerging as a source of payments certainty — for both buyers and suppliers.

“It’s always been rather clear why buyers would want to use virtual cards. But the same isn’t true for suppliers,” said Citi’s Boudsocq, noting that for buyers, the benefits that come from virtual card use, including working capital optimization, chargeback protection and enhanced data for reconciliation and fraud prevention, have always been obvious.

But for suppliers, the calculus around virtual cards has — at least until recently — been a relatively less rosy one, with the perception often being that card payments for business-to-business (B2B) transactions were expensive and not advantageous.

That dynamic is shifting rapidly, particularly as the macro backdrop of high interest rates and an equally high cost of capital spurs innovation and gives rise to new opportunities.

“We think virtual cards are really at a tipping point,” said Previse’s Christensen, highlighting that as the value proposition around their use changes, bigger suppliers and more businesses have softened their stance and become increasingly willing to accept virtual cards for B2B payments.

“There are trillions of dollars that are going to move to virtual cards in the next two, three, four, five years,” Christensen added.

Virtual Cards Reach Tipping Point

With rising interest rates and an increased appetite for working capital pervading the marketplace, Boudsocq said suppliers are starting to leverage virtual cards to negotiate better terms with buyers. They’re accepting earlier payments in exchange for discounts, preferential status or guaranteed purchase volumes, thereby driving more value for their businesses.

“We’ve seen some very large strategic spend being put on cards … there are certain industries where suppliers are more in need of cash in a very rapid manner,” Mastercard’s Wallace said.

“The key is the negotiation … contacting the supplier and talking about the working capital benefits, talking about the payment terms,” he added.

At the same time, buyers are adapting their B2B strategies. With working capital becoming a top priority across both sides of the transaction, buyers are willing to share transaction costs, or even at times finance entire transactions, in order to access the benefits of commercial card payments.

“The financial headwinds … the rising rates that have been discussed, the interchange rates that have been discussed, all of those are really feeding into a different model for card,” said Bank of America’s Petty. “What’s really rising to the top is the focus on digital payments.

“Card is one of the many tools that can get you there,” she said. “That is what’s driving the tipping point.”

Virtual Cards as Source of Certainty

In today’s world, uncertainty can be costly, impacting decision-making, competitive positioning, innovation and customer satisfaction — making certainty paramount, particularly when it comes to commercial transactions.

And there is nothing more certain than the immediate settlement of a B2B payment.

“B2C [business-to-consumer] transitioned a long time ago. It’s time for B2B to deliver that kind of great experience, where you can have a simultaneous exchange of value between a buyer and a seller,” said Christensen.

Building on that sentiment, Wallace added, “There is a lot of opportunity to revolutionize the payment experience based on not just providing a consumer-grade experience, but also ensuring that the benefits manifest themselves in the context of the finance team.”

By unlocking the potential of virtual cards, businesses can drive greater efficiency, transparency and certainty across their financial operations — while at the same time reducing reliance on traditional and clunky accounts payable (AP) and accounts receivable (AR) processes.

“Obviously, a supplier really wins when they can send an invoice and get it paid immediately,” Petty said. “But a buyer may look at it differently. They may have processes that they’ve got to go through to approve that invoice. It might not be something they can do immediately.”

Christensen noted that this is where AI-driven payments come in. Invoices can be authorized for prepayment automatically, without needing to wait for the buyer’s processes, which can run later. Any subsequent adjustments are automatically deducted from future supplier payments.

Still, challenges remain. One such challenge noted by the panelists is the need for greater collaboration and technological advancements to streamline the adoption of virtual cards. While the benefits of virtual cards are clear, complexities in integration and acceptance processes hinder widespread adoption. Collaborative efforts among networks, issuers, acquirers and businesses are crucial to overcoming these hurdles.

“We’ve talked about supplier enablement, we’ve talked about digitizing, we’ve talked about collaborating. Putting all of those things together is going to make a powerful payment system,” Petty said.

Wallace said that “educating the middle market on the benefits of virtual cards on their supply chain and how the cards can be used on the supplier side” is also crucial.

“The more that we can do to take the load off of those accounts receivable teams that sit at middle market companies is going to be the key to success,” he said.

And as businesses prioritize the digitization of B2B payment processes and start to leverage innovations like virtual cards, it is important that companies see — and capture — the benefits.

“The economics of a card transaction, ultimately, are very much at the heart of seeing that product being adopted by buyers and by sellers. … We have to work together on making sure that we embed this into ERPs [enterprise resource planners], into the various platforms, to make optionality more seamless to both buyers and sellers. And I think that will unlock the next big phase of growth within cards in terms of volume,” Boudsocq said.

Looking ahead to the future of B2B payments, Christensen said it will be driven by those players that harness the power of data to drive innovation and efficiency.

“Data brings efficiency, data brings transparency. Data can drive education and understanding. Use the data. It is 2024, and we are still licking stamps and putting checks in the mail — that’s mad,” he said.