Virtual Cards to Revolutionize Payments Industry

Over the past few years, electronic payments for B2B transactions have been increasingly growing. Virtual Cards are the leading electronic payables option, with a steady year-on-year growth rate of 9%, expected to reach a spend of $377 billion by 2018.

Virtual Cards are a plastic-less card that makes secure online payments to anyone who accepts branded purchase cards for payment. Every user has a virtual account number allowing them to establish pre-determined specific amounts, expiration dates and merchant categories, providing maximum security and encryption technologies. Virtual Card (or “ghost card”) accounts are used by multiple users to make periodic payments to a single merchant. Virtual Cards have several advantages, increased security, faster payment to the suppliers, easier employee use, efficient tracking of operational spend and increase the number of outstanding payable days, allowing the supplier more time to make the final payment to their suppliers. Virtual Cards are a suitable alternative to Purchase Cards for making low value, high frequency transactions for the operational expenses of a firm, such as office supplies, printing material and MRO expenses that are typically in the range of $2500 to $5000. An added advantage with Virtual Cards is that they can also be used for high value/low frequency transactions such as cars, machinery or professional services, such as marketing and consulting.

Virtual Cards are increasingly being integrated into firms’ e-procurement systems. E-procurement systems can enable cost savings between $10 to $20 per transaction by streamlining and automating a manual, multi-step purchasing process and eliminate the manual reconciliation and payment process associated with invoice and check processing. Virtual Card accounts are created with multiple suppliers listed in a firm’s e-procurement system with whom the firm has high levels of payments for their operational spend. This minimizes administrative workload by allowing a company to manage multiple supplier account payments using a single Virtual Card account. For example, a global law firm achieved significant cost savings and process efficiencies by implementing an e-Procurement system and integrating it with its card program, eliminating purchase orders and checks, thereby decreasing the average cost from £15 to £3 per transaction.

Another recent industry trend is incorporating Virtual Card acceptance into supplier contracts during negotiations. This aids the firm in increasing spend on their virtual cards and shortening the payment cycle, maximizing cash flow to suppliers and reducing costs. Many suppliers are unaware of the benefits of the card system, and firms are working to educate them on the advantages of card acceptance and placing compliant vendors on their preferred suppliers list. One global technology company insisted on considering only those suppliers for an RFP, one who could provide the highest granularity of transaction data and accept virtual cards, thus allowing for 95% of the $39 million card spend to be accompanied by detailed Level III transactional data. Another example is the case of a European civil contracting company that was able to save at least 2.5% for every transaction for their Procure-To-Pay process. 

Virtual Card adoption is particularly high in mature markets, such as the United States and United Kingdom, with an annual transactional volume growth of 7.2%. Virtual Card use is growing in acceptance in the rest of Europe, albeit slowly (in comparison to other developing markets at 8.6%), due to the high associated surcharge fee of 2 to 2.5% and local supplier preference for ACH or wireless payments. Latin American countries such as Brazil and Mexico saw an increase in commercial card usage with a card transaction volume growth of 23.3% annually; however, the idea of Virtual Cards for purchasing goods is yet to catch up. In the Asia Pacific region, Australia and New Zealand extensively utilize Virtual Cards, and government agencies in Singapore and Hong Kong use them for greater transparency and compliance in their transactions. However, the idea is yet to catch up in China and India where ACH and checks are still preferred for payment, as the credit policy in these countries highly restrict use of commercial cards for corporations.

Virtual Card accounts are highly customizable as per their end-users needs, and firms must make their Accounts Payable data available to banks in order to strategize the optimal use of virtual cards for various spend categories. Several Fortune 500 firms have started extensive virtual card programs and are reaping the benefitsꟷincluding operational savings, rebates for timely high volume transactions, increased transparency for auditing purposes, easy integration into business continuity plans, faster supplier payments processing, improved supplier relationships and customizable data reports for spend analytics.