The rise and staying power of virtual cards for B2B payments

Fast, secure and convenient payments continue to prove the case for virtual cards.

Businesses that were heavily reliant on paper-based processes and manual payments procedures found themselves in a bind when lockdowns went into effect due to COVID-19. Take for example, managing payables (cutting and signing checks) and receivables (collecting, sorting, and logging manual check payments) when staff were sheltered at home. Some CFOs and controllers went so far as to pack up their check-printing equipment and relocate it into employee garages. It didn’t take long for many company leaders to realize that paper-intensive processes were no longer sustainable. There had to be a better way in this digital age.

The results of a recent survey by the National Center for the Middle Market confirm that “the pandemic has made many firms more likely to invest in digital solutions,” with 46 percent of the 1,000 companies ($10M to $1B in annual sales revenue) surveyed citing that they are planning to invest to digitize operations in the near future, with a focus on moving to cloud-based business processes and going paperless.

A key digital solution that many businesses – large and small – are turning to are virtual cards. Virtual cards use a uniquely generated card number, expiration date, and security code as a proxy to a traditional plastic card or paper check. This process gives the business and its respective account holders a level of added security while easing some of the hassles of traditionally cash or check-based payments processes.

The evolution of digital technologies and demand for solutions that enable efficiency and convenience across business operations spurred virtual card growth to nearly $200B in North America prior to COVID-19.¹ This growth is expected to continue, with estimates that the virtual card market will hit $500B by 2025.² Checks were already in decline prior to the pandemic, while virtual commercial cards were gaining traction. Over the past year, 1 in 3 businesses reduced their check usage³ in favor of electronic payments, paving the way for virtual cards to be used across numerous use cases from supplier invoice payments to instantly generating a one-time use card for employees to manage day-to-day spend. With recent technology advances, it is easier and more secure for an employee to use their mobile phone to make online and contactless purchases using virtual card solutions.

Virtual cards eliminate the hassle and expense of processing paper and managing physical cards. They are gaining popularity across a variety of segments for several reasons:

1. Efficiency: Manual processes such as keying in remittance details to an Enterprise Resource Planning (ERP) system, handling check-based payments and their associated data, and reconciling invoices take time and money. Virtual cards can help to automate the labor-intensive work behind payables, support real-time confirmation of payments, and can also help businesses track and manage expenses digitally. They can also reduce the need for individual physical cards for each employee that can get lost or mismanaged. And when used in place of personal cards, commercial virtual cards can save employees the inconvenience of using personal funds for business expenses and save the company the inconvenience of tracking and managing employee reimbursements.
2. Security: According to NACHA, the governing body of the nation’s Automated Clearing House (ACH) platform, checks are the most targeted payment method for fraud within B2B payments.⁴ Alternatively, virtual cards are issued with a unique 16-digit card number that expires when the payment is completed or when the allocated timeframe is reached, lowering the risk of potential fraud and misuse. They are also generated with very specific parameters, such as length of time for use, exact payment amount, and type of merchant. These account and transaction-level controls need to match before an authorization is approved, making security and control a big advantage for virtual cards when compared to other payment methods and checks in particular.
3. Convenience: Virtual cards can work seamlessly with mobile wallets, contactless payments, and online ecommerce to support a company’s B2B payments. Many financial technology providers, for example, are utilizing these capabilities to develop “push provisioning” of corporate payment credentials onto mobile apps and wallets. This has vastly simplified the payment process across the many ways an employee may need to pay. Virtual cards support the needs for a job candidate to pay for travel for an interview, for contractors to reload on supplies at a construction site or for workers to cover other business expenses.

And because virtual cards are a non-physical plastic version of a commercial card, companies have quickly realized core business and operational benefits of cash flow management, liability protection, and detailed data for tracking, reporting, and reconciliation.

Accelerating change on the supplier side

The benefits of virtual cards are realized when companies receive payments as well. Prior to COVID-19, many B2B suppliers were already evaluating improvements to their accounts receivable (AR) processes, but over the past year, digital AR processes became table stakes. As companies begin to accept virtual card payments, many note the often manual processes required from their AR team to support the receipt of these payment types. This is a process that can require receipt of an email, opening the virtual card link, determining the full card number, and then inputting this number into a physical or virtual terminal to process the payment. Although far more secure than other payment methods because of these controls, the process can become quite extensive depending on the number of payments received. This area of the supplier AR experience has been of focus for numerous financial institutions and fintechs, who are looking to help automate this process.

According to Billtrust, a Visa partner and leading provider of B2B accounts receivable automation solutions, 83 percent of B2B suppliers have changed their AR processes over the past year as they look to move away from manual processes and switch to digital. In addition to the administrative benefits, suppliers are often paid sooner when paid by card – the sooner a supplier receives payment, the sooner they can purchase additional supplies and inventory.