According to Mastercard, Visa and American Express, commercial card payments
hit a five year high of US $2 trillion in 2018.
Companies that cater to these types of transaction rightly see opportunity
and are investing in new solutions, like virtual cards,
which simplify the management of a company’s payments, increase usability
through mobile apps and online portals and reduce operating costs,
all through a range of powerful new digital features.
Yet some businesses remain hesitant to adopt virtual card technology. Why?
It’s a problem of perception.
Businesses – finance departments in particular – associate change with risk
and, fearing technical complexity,
often shy away from adopting new tech. This is a mistake; there are big
value gains to be had with comparably little cost and disruption.
What are virtual cards and why are they cool?
Essentially, a virtual card functions in the same way as a normal credit or
debit card, minus the plastic.
Making this leap gives companies far more than a bit of extra space in their
staff’s wallets. By going digital, the cards themselves can be endlessly
reissued,
and the rules that govern them quickly reprogrammed, giving a company almost
limitless flexibility to shape its spending power to suit its goals.
This means that, unlike plastic cards, virtual cards can be single use. A
new card, with a new card number, can be created for every transaction – and
still each maintain a direct link back to a single,
central bank account for easy and transparent accounting.
One key business advantage of using virtual cards lies in their ability to
significantly reduce the risk of fraud. The creation of a new virtual card
for each transaction means that,
even if sensitive card data is intercepted, it cannot be used to make
further payments. What’s more, when a virtual card is ‘spun up’, it is
created for a
specific payment – referencing the exact amount, merchant, and date range.
Payments outside of these parameters simply won’t be authorised, seamlessly
protecting buyers
from fraudulent transactions without impacting the user experience.
Furthermore, the authorisation framework of the unique virtual card number
(VCN) makes payments easily trackable and provides all of the data needed to
help merchants reconcile
payments with account receivables – increasing operational efficiency on the
supplier side.
Virtual cards are uniquely valuable in B2B contexts. Although consumer
products were brought to market, the inability to use them for in-store
payments and ATM cash
withdrawals limited their adoption, and most issuers eventually stopped
offering them. As B2B payments are rarely made via a physical terminal (i.e.
face to face),
this adoption barrier doesn’t exist in the corporate world, prompting many
industry experts to predict that virtual card volumes would snowball.
Yet, years later, we’re still awaiting the watershed.
So what’s holding the industry back?
The adoption of new financial processes is often a long-term goal. Not
unreasonably, many companies, particularly enterprise-scale firms,
perceive integration challenges and downtime as both likely and
high-risk.
It’s certainly true that any downtime of internal payments systems would be
damaging, but the use of dedicated, cloud-based APIs from specialist digital
payment
firms dramatically reduces these risks – such firms are solely dedicated to
ensuring their digital payment systems seamlessly integrate with a
business’s
existing systems, and remain continuously available.
There is also a common misconception that while virtual cards benefit
buyers, their impact on the suppliers is broadly negative.
An often-cited issue is that of increased interchange fees borne by the
company accepting payment, which can be up to 2.5% of each transaction.
This perception deserves to be challenged, principally because it discounts
the business opportunities that virtual cards bring to suppliers
including dramatic process efficiencies and, perhaps most importantly,
improved cash flow from instant settlement..
Virtual cards from issuers like Barclays enable buyers to pay suppliers
upfront via a line of credit, without affecting their own cash
flow – similar to the process of paying off a consumer credit card
payment.
These strategic benefits to both buyers and suppliers, while nuanced, stack
up to a compelling value proposition for even the most change-resistant of
firms.
Are we nearly there yet?
The stars appear to be aligning for corporate virtual card adoption. The
only real barrier remaining is that of supplier education. To ensure
successful take up,
issuers, digital payment integrators and buyers alike must share
responsibility for communicating their value to merchants within B2B supply
chains.
Accomplish this and we will finally start to see the levels of adoption this
terrific payment technology deserves.