Virtual cards are refining B2B payments, offering more security and control, but are they the long-term future of sound B2B transactions?
Adflex CEO, Pat Bermingham, looks at the technology’s development in recent years and how it can overcome the barriers that have historically held back mass adoption.
Businesses are increasingly demanding enhanced security and spending controls in their B2B payments, which means virtual cards could proliferate in 2023. Juniper Research predicts that the number of virtual card transactions will exceed 121 billion globally by 2027; increasing from 28 billion in 2022 and representing growth of 340%.
Virtual cards offer businesses increased control over spend, as well as strong security capabilities. Yet, virtual cards face a potential roadblock: the way they are issued and received by buyers and suppliers. The critical question is how businesses can use and manage them in a secure and efficient way.
Why are virtual cards set to proliferate?
A virtual card is a card number which is generated for a specific purpose, be that for a one-time transaction, allocation to a specific employee or department within a company, or with a limited budget or period of time for its use.
Virtual cards, just like other forms of card payment, have been around for many years now. But, unlike other forms of card payment, they are still underutilised. The market is there though, and use cases are often the same for virtual and non-virtual cards, which is good news for the virtual format.
During Covid-19 lockdowns, businesses and consumers worldwide turned to card payments. For businesses that could leverage cards to process and make transactions digitally, being able to reduce human admin and automate processes eased the burden on dispersed accounts payable teams.
These efficiencies are just as relevant today, as rising costs remain a big business challenge in 2023. In B2B, commercial cards allow a buyer to pay suppliers using an extended line of credit. This allows the buyer to pay suppliers on time to maintain good working relationships, while maintaining their own working capital to reduce cash flow headaches for all parties.
Virtual cards build on these benefits by offering unrivalled control over spend, as they can be front-loaded to the exact amount of a specific transaction or budget. Virtual cards can also be allocated to a specific employee or department within a business, to allow for increased control over who can use the funds.
Thanks to the automation capabilities of virtual cards, businesses can save time and money – according to Mastercard, they have the potential to drive cost savings of $0.50 to $14 per transaction – so we’re expecting them become a key payment technology in the near future.
So, what’s been holding them back?
Currently, only 2% of transactions are made using virtual cards according to the Payments Association. Why? Fear of the unknown has been the biggest barrier to adoption historically, something I wrote about back in 2019. As virtual cards have become more popular in recent years, other bumps in the road have become evident.
The main challenge among these involves the management of all those new card numbers. Handling sensitive card information and uploading invoices can be incredibly manual, due to a lack of infrastructure to manage card numbers once they are ‘spun up.’ In many cases, this means card numbers are shared via email for manual processing and sometimes issued to department emails, where a number of non-approved staff members may have access to card details. This could also mean hundreds, or even thousands of card numbers are insecurely stored on the suppliers email servers.
Will this stop virtual cards from hitting the mainstream?
In a word, no. The infrastructure around virtual cards is improving, and businesses are increasingly seeing the value of working with experienced processors when managing such technologies. This includes both buyers and suppliers, as well as leading procure to pay platforms such as Coupa and SAP Ariba. Working with a processor, businesses can cost-effectively optimise the use of virtual cards, with minimal disruption, by leveraging secure payment platforms.
Uptake of virtual cards in B2B varies from sector to sector. One early adopter is online corporate travel bookings, where they minimise transaction risk for the buyer. The value of virtual cards to businesses in the travel space was highlighted during Covid-19 restrictions, when companies were desperately trying to secure refunds for cancelled business trips. Chargeback claims were more straightforward for those leveraging virtual cards, as they are created for specific purposes and so can be easily traced.
Companies can apply budgetary and time restrictions on a virtual card, and so send an employee on a work trip with a pre-loaded number, via which they can make business purchases for the duration of the trip. Accepting virtual cards through a managed payment gateway can also reduce resource requirements for calling and emailing customers to take payments, or having to handle sensitive card data. These benefits are transferable; they aren’t solely available to the business travel space.
What other barriers are being removed by processors?
To maximise the benefits of virtual cards, it is important that businesses have access to the latest infrastructure. Leading payment technologies such as straight-through processing (STP) automate the payment process to further reduce a business’ exposure to card numbers, and minimise the resource required to make a transaction.
For many businesses, implementing new payments solutions brings disruption to mind, but experienced processors today can integrate and update systems quickly, sometimes in a matter of hours.
By doing so, businesses can reduce the resources required to manage and make payments, and enable faster settlement, for better supplier relationships. The process is simple: STP can process a virtual card, settle the funds, and deliver payment results to both AP and AR without human interaction, offering a breakdown of cost in real-time and better visibility of cashflow.
This can all take place within an API-enabled platform, which ensures numbers don’t have to be seen by a human, or stored by the supplier to reduce the burden of PCI DSS compliance.
Will virtual cards break into the mainstream this year?
As implementations become smoother thanks to processors offering end-to-end virtual card payment flows, the time for virtual cards to become the go-to solution in B2B may finally be here. Virtual cards are a solution for the ‘now’; they can be created quickly, managed securely, and instantly benefit businesses with their flexibility to scale up or down with little overhead.
If it doesn’t happen now, however, it may never do so. While virtual card networks are improving all the time, the long-term future of secure payments may lie in scheme token networks, which completely remove the need for any party to see card numbers, effectively trumping the security capabilities of randomly generated card numbers.
Regardless, we still fully expect to see virtual cards growing in the years ahead, though it’s interesting to see different verticals leading the way in different countries. For example, construction is a front-runner in North America, but professional services have greater uptake in the UK.
The adoption of virtual card technology, alongside rising reliance on cloud-based platforms is allowing B2B payments to embrace interconnectivity, and with it, more seamless processing capabilities. As the infrastructure continues to improve, so too will the speed and convenience of virtual cards. This, alongside security and real-time reporting benefits, puts virtual cards in a great position for growth in the year ahead.