There’s a lot of attention right now on virtual cards, and you might be wondering if there’s any reason you should consider them. After all, you may have been using corporate cards for years and they give your employees an immediate way to pay for purchases. Why bring on something new now?
Virtual cards are growing in popularity, and the market is expected to reach $500 billion by 2024, according to Finextra. What’s behind this trend? In short, corporate cards aren’t the best payment option for every situation and they don’t offer the same degree of reliability and protection that virtual cards do. With security a growing area of concern and focus for finance operations, this is a key consideration.
Before comparing virtual cards with corporate cards, though, it’s important to define the types of cards we are referring to.
What is a Virtual Card?
The term virtual card refers to unique, randomly generated card numbers populated for one-time usage with specific parameters such as the amount or time frame it can be used. Virtual cards are delivered to your suppliers via email and are processed just like a credit card. These cards also offer benefits such as workflow acceleration, enhanced payment security, and cash-back rebates.
What is a Corporate Card?
While many use the term corporate cards indiscriminately, it includes three common types of cards. The first is the traditional Travel & Expense, or T&E, card, for employee use during business trips, meals, and other related expenses. The second is the fleet card used for fuel and vehicle maintenance expenses. The purchase card, or P-card, is the third common type and is used to pay for goods and services, with some controls such as daily and monthly spending limits.
The Advantages of Virtual Cards Over Corporate Cards
There are many advantages of virtual cards over these traditional corporate cards. Here are three of them:
- A high degree of security. If a corporate card, or p-card, gets lost or stolen, or the account number becomes compromised, bad actors can rack up charges before you are even aware of it. According to the 2020 AFP Payments Fraud and Control Survey, 34% of businesses experienced corporate or commercial card fraud in 2019, compared to just 3% of those using virtual cards. What accounts for the difference? Virtual cards have strict security controls embedded into the process. As mentioned, each virtual card has a unique randomly generated number, also known as a payment token. Also, because it is authorized for a specific dollar amount and for one-time use only, it offers a high degree of protection from B2B payments fraud. In addition to virtual cards offered by a payments provider, your bank might be able to tokenize a commercial card it issues when payments are made through its AP software platform.
- Increased control. Once you issue corporate credit or p-cards, you lose control over them. You don’t know when employees will use them, or how much they will spend. In addition to the difficulty of managing, or even being aware of the expenses that employees are charging, you have no way of knowing if they are looking for the best prices, are authorized to purchase a particular item, or if they are misusing the card. While P-cards can offer some control by limiting use to specific vendors, they don’t strictly monitor purchase amount or regulate specific purchases. By contrast, since virtual cards are issued for a specific dollar amount, the company is aware of the expenditure, the specific cost and the time limit in which it can be used. You also can build in rules, such as requiring dual approval, before a virtual card is issued.
- Easy reconciliation, seamless processing. Unlike corporate card purchases which appear in a separate statement, virtual card purchases can show up on your bank statement as debits, just like ACH or check withdrawals, along with remittance data to help streamline account reconciliation. And, processing virtual card payments is seamless. Most modern accounts payable (AP) systems automatically generate virtual card payments just like checks and ACH payments, so there’s no extra work on your part.
How to Start Using Virtual Cards
Just like corporate cards, virtual cards offer cash-back rebates, so you can earn money on your supplier payments. That way you can have the best of both worlds: the rebates you’ve grown accustomed to as well as all of the benefits listed above.
Given the value that virtual cards provide, you might be wondering how much time and effort it would take to start using them. Since virtual cards are a payment option that’s already built into an AP automation platform like MineralTree, there’s no additional work or overhead needed to integrate and start using it. On top of that, the provider takes the burden of supplier enrollment off your shoulders, helping you to maximize the benefits. All you have to do is provide a list of suppliers and discuss how you would like them to be approached, and the provider takes care of the rest.
A virtual card might not be the answer for every situation. There are still times when you may need to use more traditional credit cards, such as for online advertising platforms or recurring SaaS subscriptions, or other purchases that require a fixed credit card number to be kept on file. Yet, for other times when you know what your purchases will be, or want to more effectively manage spend, there’s nothing better than the security, control and peace of mind that virtual cards offer.