Among the widely talked-about topics in the financial services industry, the virtual card has grown in acceptance among banks and consumers in recent years. In the digital world, consumers are now transitioning away from “physical” plastic cards by adopting virtual cards.
While virtual cards have been in existence for some years now, is 2022 going to be the year of the virtual card?
According to Juniper Research, the use of virtual cards is expected to exceed $1 trillion this year and will earn a revenue of over $14 billion for payment card companies. Author James Moar believes that “virtual cards offer a number of financial management possibilities, for both business and consumer use.”
In today’s consumer-centric business world, virtual cards are a great fit, as they are completely controlled by the end-user. This is exactly the opposite of “traditional” plastic cards, which were “owned and controlled” by banks and card issuing companies as they determined the credit limit and card features.
Why are virtual cards a good fit for modern-day banking? Let us look at 5 reasons.
Is it the low cost or the environmental sustainability that makes virtual cards perfect for use in 2022? Let us consider the 5 top reasons:
In recent times, physical cards have become the target for unauthorized transactions and payment frauds. While corporate spending decreased in 2020 due to the pandemic, financial frauds and violations increased by over 206%.
While both plastic and virtual cards are linked to the primary customer account, virtual cards are more secure as they place a spending limit for every purchase or transaction. As they are restricted to a one-time payment, virtual cards are practically useless to hackers.
On the other end, business vendors can obtain a unique number, using which all their transactions can be tracked. Further, financial data on virtual cards are difficult to duplicate or breach.
Overall, virtual cards tend to levy lesser costs on their customers, as compared to traditional plastic cards. A WFX and Economist joint report states that bank-issued checks still account for over half of the $25 trillion in B2B payments. Mastercard states that U.S-based business enterprises spend nearly $100 billion each year in issuing and processing paper-based invoices and checks.
On the other hand, virtual cards are economical and can save business costs. Among the major adopters, General Motors is paying 85% of its bills in the U.S and 90% of its payments in Europe using virtual cards. According to Jim Davlin of GM, virtual card payments “give us better controls, visibility and predictability in cash management.”
With a few clicks or taps on a smartphone or tablet, virtual cards are more convenient than traditional cards. Unlike “traditional” business accounts, enterprises can quickly get started on their virtual card accounts and make their online transactions.
Recent studies reveal that it costs any business enterprise around $5.95 to issue a paper-based check to its suppliers and complete the process.
Thanks to its ease of accessibility, virtual cards enable business enterprises to add accounts “on the fly” and close business deals without management approvals. Using virtual cards, corporations can also manage spending limits for their employees in real-time, as compared to handing out a physical credit card. For multiple employees, virtual cards are easier to manage and help in spending controls.
Considering the average weight of a plastic credit card being 5gms and a total of 25.2 billion cards issued globally, card issuers must reevaluate the environmental impact of traditional cards. The number is only expected to increase to 30.6 billion by the year 2026.
The environmental damage caused by plastic material is globally known and can be easily countered using virtual cards. This means lesser use of plastic and more sustainability in their usage.
Besides reducing plastic waste, virtual card payments are sustainable thanks to lower business dependence on manual paper-based processes including invoice processing and electronic payments. Similarly, the company’s accounts team does not need to keep track of printed receipts or expense sheets for their daily cash flow.
With their limited usage, virtual cards provide a lower spending limit for any single transaction as compared to physical cards. Effectively, companies have more control over business spending with the limited usage and lifespan of virtual cards. For instance, payment card companies can configure the spending limit for each of their retail merchants.
Additional ways of controlling spending on virtual cards include setting a transaction time frame, single transaction amount, and specific categories of suppliers, merchants, or employees. In place of banks or card issuers determining the card limit, card users and companies can customize their spending limit based on their individual or business needs. Cardholders can even decide when to freeze or close their virtual card account.
Considering the many benefits, banks and card companies must look to accelerate their adoption of virtual cards. Let’s see how they can do that.
To move towards digitized payments, banks and payment companies must look to migrate away from the traditional paper check mode and adopt virtual cards gradually. For a smooth transition, payment companies must not adopt an “All or Nothing” approach.Neal Anderson of OnPay Solutions considers a successful adoption rate “to be at around 20-25% of the overall accounts payable spending.”
For the remaining transactions, organizations must look at other digital payment tools like physical plastic cards and automated clearing. According to Neal Anderson, banking CFOs must consider virtual cards to be part of their overall digital payment strategy.
To improve the successful adoption of virtual cards, banks and payment companies need the ability to exchange real-time information with end-user systems. Embedded finance is one mode of addressing this business need.
Among the biggest benefits, virtual cards offer businesses more spending control and faster reconciliation for all completed payments. Effectively, virtual cards can work for banks and payment companies as a form of safe and digitized payment for their business customers.
At Verinite, we have accelerated the adoption of digital payments for banks, Fintech companies, and third-party payment companies.
Are virtual cards the best payment solution for your business? We can help you determine that.Get in touch with us!