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Business Payments, Now Mostly Through Cards, Are Going Virtual

This Month In Commercial Banking

Without exception, Curinos’ corporate clients with more than $20 million in annual card spend are emphasizing card payments, rather than check and ACH, for their accounts payable disbursements. And increasingly, that means virtual cards. 

Virtual cards are payment cards in a digital format only, with no physical counterpart. They offer a variety of benefits for businesses including greater liquidity, increased rebates, enhanced security and operational flexibility. For a card-issuing bank, they can raise a corporation’s card spend and increase the bank’s interchange revenue.  

Advantages for Companies 

Virtual cards can streamline procurement by enabling businesses to make payments to suppliers and vendors that are secure and controlled. Instead of having to share the details of a traditional credit card, businesses can issue virtual cards with predetermined spending limits, expiration dates and merchant restrictions. Single-use virtual accounts, for example, are coded for a specific supplier, amount and expiration date, and the single-use card number is sent to the vendor as payment. Because of the restrictions on the card, a stolen card number can’t be used for any other transaction, which enhances security by minimizing the risk of unauthorized transactions. In addition, virtual cards simplify accounts payable processes, automate reconciliation and improve cash flow management.   

By incorporating virtual card programs into their business-to-business accounts payable, bank clients also realize two financial benefits: 

  1. Negative cost. The costs associated with issuing checks and ACHs is replaced with the rebate tied to card spend. (Meanwhile, the card-issuing bank benefits from the interchange fees, which are higher than the revenue derived from checks and ACH payments.) 
  1. Enhanced liquidity. Because cards permit timely payment to a vendor but delay outflow of cash until the credit card charge comes due, banks gain several days of liquidity. In a rising interest rate environment, this slower cash outflow is increasingly beneficial to businesses. 

Effective Use Cases 

Virtual cards provide benefits to a range of specific payments use cases. These include:  

Managing employee expenses. Companies can issue virtual cards to employees for business-related purchases such as travel expenses, client entertainment and office supplies. Through expense management platforms, they can be easily managed and monitored, providing real-time visibility into spending, reducing the risk of fraud and simplifying reimbursement. 

Online shopping and e-commerce. For online shopping and e-commerce transactions, virtual credit cards offer an extra layer of security by generating unique card numbers for each online purchase, thereby mitigating the risk of data breaches and fraud. This increased security tends to boost the peace of mind of both businesses and customers, which can lead to more online transactions and increased credit card spend. 

Managing subscriptions. Managing recurring payments for subscriptions and services can be tedious and prone to errors. Virtual cards offer an efficient workaround by allowing businesses to create single-use or limited-use cards specifically for subscription payments. These cards can be easily set up, linked to a specific vendor and automatically renewed or canceled when needed. This eliminates the need for manual tracking, reduces the risk of overspending and provides businesses better control over their subscription expenses. 

Contractors and freelancers. With an increasing number of businesses relying on freelancers and independent contractors for specialized services, virtual cards can permit them to make purchases associated with their services that are approved by the company. Providing virtual cards to these temporary workers allows businesses to track expenses, manage project budgets and streamline payments to them. In addition, because of the virtual nature of these cards, which reside on a worker’s phone, they can be issued immediately and accommodate near-real time changes to credit limits and accepted merchant categories. 

Bottom Line 

Because they offer enhanced security, flexibility and cost-effectiveness, virtual cards have emerged as a valuable payment solution for businesses across a range of industries and for a variety of uses. From expense management and vendor payments to subscription management and online purchases, incorporating virtual cards into an overall card program increases a company’s card spend efficiently and safely. 

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