The Virtues of Virtual Cards

Visa projects the worldwide value of virtual card transactions to exceed $7 trillion in 5 years, a gain of $5 trillion from 2021. Commercial virtual cards have boomed in recent years, spanning supplier payments and software subscription to insurance and travel expenses.

Why is this? Virtual cards bridge the ease, convenience, and speed of a consumer card experience with the rich remittance data and enterprise spend controls of commercial purchase cards.

However, it isn't just commercial use cases. Virtual cards usage is also increasing among consumer, whether it's to solve traditional pain points around cross-border payments or to enable instant and smooth access to credit or buy now, pay later (BNPL) solutions.

In terms of smart lending, the instant issuance of credit capable digital cards enables lenders and merchants to offer end-user payments within the app they are using. This process is a lot more convenient and seamless compared to the traditional credit application process.

Payment companies are also partnering up to provide processing and payment services to Middle East and North Africa (MENA)-based FinTechs, with virtual cards offering massive opportunities to fuel greater financial inclusion in developing regions.

In instances where there is an emergency or an unfortunate disaster, virtual cards can be used by governments to seamlessly send funds to people that would otherwise be unable to seamlessly access money.

In simple terms, these digital cards can be used to break down barriers across borders both in the commercial and consumer card space. Which in turn makes payment moves that would have been improbable 20 years ago relatively straightforward in today’s world.

With Business to Business processes, payment issues go hand in hand with data issues. If data issues are sorted then payment problems can also be sorted. They are inextricably linked, particularly when it comes to large-ticket, cross-border transaction. These types of payments are complicated and there is always a bit of data associated with the transactions that both parties need to reconcile. 

It is the reconciliation point that is rife with problems.

It is one thing to solve the payment piece, and that has been relatively sorted with transfer of money from one account to another becoming a seamless process among financial institutions; the problem, however, has to deal with the data side of the entire equation. The back-and-forth exchange of data has been mired in an antiquarian process that is decidedly 20th-century in terms of technology: paper invoices, faxes, phone calls and paper checks. Along the way, data gets lost or is incomplete, creating negative ripple effects up and down supply chains, rooted in smokestack verticals such as manufacturing or logistics.

Due to the pandemic and its associated policies, the problem has been exacerbated. However, only the pain points of sending and receiving remittance details have been highlighted. The causation  factors should also be highlighted. 

The entire process since its inception has been rife with inefficiencies, and this is just part of a longer cycle to ensure that these industries are in a much better place when it comes to the transfer of data and money. What this mean is that there needs to be a push towards digital transformation.

This pivot is critical for the telecom, healthcare and manufacturing industries.

Fraud and B2B payment processing

Digital cards have long optimized the expense management of organizations, with a move from employees having to go to the office before the pandemic just to prepare checks. Now they have the option to streamline the entire process, thanks to the automation that virtual cards bring. This is not only cost-effective, but it also is safer and a lot easier for partners and suppliers to get paid on time.

This transformation also enables employers to control spending, either by assigning a multi-use virtual card to an employee for various payments or perhaps a more stringent single-use, specific-purchase card to ensure transactions over a certain value aren’t approved. It can also be a way  to limit payments to a particular supplier or merchant.

The feature helps to mitigate fraud in business to business payments. The fact that digital cards automatically categorise transactions and provide spending data that can help finance teams make better spending decisions. It is a great example that highlights the fact that virtual cards can be a payment token for you to assign a set of features and controls tailored to a user experience. This is something that traditional physical card products have never been able to achieve.

What legacy banks can do

Traditional banks can leverage on the current momentum to drive virtual card adoption. Nevertheless, a bit of the challenge is that they have long prioritised procurement and corporate cards over virtual cards, causing this niche to be left to specific B2B players.

Nevertheless, it isn’t too late for legacy banks to get on board, as they can do this by integrating and working with specific partners to recognise ways that they can introduce virtual cards into their repertoire. This process is going to be extremely important, considering that to progress, they will need to continue playing the central cash management role they have enjoyed for a very long time.

Beyond traditional corporate clients, there is an increasing number of merchants demanding digital-first payment options. Due to this, they will require products such as virtual cards in their range of services to facilitate instant issuance. This can be used to support Buy Now Pay Later purchases, for instance.

Experts state that the level of consumer expectation has grown exponentially over the years. Consumers now expect every digital experience, irrespective of whether it is coming from a merchant, a FinTech or a bank. They all need to offer the same fast and seamless payments. this trend is supposed to raise the expectation level quite significantly and it will continue to play an important role in driving the adoption and integration of virtual cards into all the systems moving forward.

It is surprising that more than half of consumer finance companies and utilities have the software and capability to process all monthly bill payments digitally, however only 12% of them do so. This shows that there is certainly room for improvement.