Are virtual cards evolving to meet new payment demands?

At some point we’ve probably all sent or received money in the mail. And if you’re a business owner who relies on the mail to receive recurring payments from other businesses, it could be thousands of dollars at stake each month. What happens if those checks never arrive? There’s not much you can do.

What may seem like a scene from the movie “Catch Me If You Can,” is actually a real-life scenario for many banks and businesses. According to the Financial Crimes Enforcement Network, check fraud in the U.S. jumped almost 50% in 2022, and despite that increase, more than 60% of account receivable departments do not have a majority of their payments or invoices as digital. Also alarming is 29% of commercial payments globally are still made by cash and checks.

Organizations that use electronic payments to replace legacy business-to-business (B2B) payment systems see results—particularly with virtual cards. They can help improve operational efficiency, cost control, ease of use, visibility into transactions, and fraud mitigation, among other areas. They also offer increased functionalities, such as going beyond single use.

Yet to remain relevant and competitive with other emerging real-time payment options, such as the FedNow® Service and RTP®, virtual cards should be part of an all-in-one solution for managing B2B payments. This would include paying suppliers for traditional B2B invoices, and more non-traditional in-person payments such as business travel. That’s because payers and payees want choices based on their preferred payment channel as well as pricing and invoice terms. This creates a more personalized experience.

A digital strategy for a modern problem

Some vendors prefer in-person payments. This often requires commercial credit cards (physical) or check/cash advances. Virtual cards issued off those physical cards and loaded into a mobile wallet opened a new area for payments.

For example, an employee uses a virtual card to pay a vendor because the transaction is instant and authenticated. Another vendor requires a different electronic payment such as a RTP as it may already be integrated into their accounts receivables and banking relationship.

This shift to virtual payments is largely due to digitalization, marketplace demand and competitive pressures. In fact, 73% of CFOs expect virtual payments to change their business in the year ahead.

Another 25% of top-performing North American growth Corporates plan to use virtual cards more than other payment methods in the next 12 months.

Are banks and businesses ready for this digital transformation? One study found less than half of respondents said their company is “very modernized” (digital).

When it comes to virtual cards, concerns include:

• Complicated integration as part of more common payment options
• Smaller businesses do not have the technology, interfaces or vendors to handle them
• Employee access and usability like physical cards
• Block/stop compromised physical cards without impacting virtual card usage
• Too much effort versus other priorities
• Fraud monitoring is more difficult than other commercial cards

How can these be addressed?

A payment change can do you good

A few years ago, virtual cards were fairly simple. They were primarily used with one vendor, for one purpose and for a short period of time. They had a specific, often small amount of money per card and were highly controlled.

Take the use case of a business administrator. Every quarter, the employee uses a virtual card to make a $500 payment for office supplies to company A. Each payment is made with a different card that has an expiration date. Once a card is used, it’s inoperable. This makes setup and administrative work simple.

Each transaction required issuance of a new card and documentation of payment issuance and receipts in the accounting software. There was a limited amount of fraud as transactions reconciled to each virtual card number an employee was assigned.

Much has changed with virtual card technology.

Additional capabilities now help with accounts payable automation, expense management, procurement, and mobile payments. Other emerging factors for virtual cards include:

• Shift to multi-use and recurring payments
• More flexible spending limits
• Longer expiration periods
• Data-driven insights into transactions
• On-demand issuance via web or mobile applications
• Push to mobile wallet for in-person use
• Greater card spend controls tailored for employee/vendor payments

For spend control, a virtual card number can now be used for a recurring payment instead of a business' primary account number. This may limit exposure of the business’ information to the vendor, while also allowing for more customized card controls specific to that vendor and individual purchases.

Additional benefits are available when connecting cards to a comprehensive suite of payments. They streamline the integration efforts and provide a consolidated reporting platform.

Consolidated platforms tend to be more resilient and flexible for virtual payments since they leverage the proven infrastructure, scale, and usability of traditional commercial card solutions and programs. An example is adding virtual card capabilities off one’s business credit card for employee travel expenses. This leverages sharing a common credit line and expense reporting process while maintaining controls and visibility.

Fraud finds a way

Despite the positives with virtual cards, fraud is a concern. A recent example involves a former Jacksonville Jaguars employee pleading guilty to stealing $22 million with the company’s virtual credit card program.

Virtual cards may be susceptible to fraud largely due to the need to remove single use and transaction limits. More often, open virtual cards are being caught up in data compromises that target online vendors. Virtual cards have similar exposures to unauthorized use as regular traditional commercial card users.

Our ally is access to real-time data, including location controls, fraud monitoring and spend patterns. Virtual cards have different spend patterns than traditional corporate cards. Building fraud prevention strategies based on spend history, and blocking individual virtual cards versus commercial card plastic helps limit impact to businesses and their payees.

Even with safety measures, it’s often up to the business and cardholder to keep personal and finance details safe.

Adoption begins with banks

By having virtual cards as part of a larger payment option and showing how it supports customers, the technology can be a difference maker.

“That’s the thing about new payment technology—no matter how advanced it is to help our daily lives, it must be easy to use and integrate, or it won’t be successful,” King said. “Banks and issuers must show their value to customers.”

If you are interested in learning how TSYS can help make virtual cards your preferred method of payment, and assist in the fight against fraud, click here.