Why haven’t virtual cards lived up to their potential for B2B payments?

FIs dealing with interchange fees, fraud and alternate payment methods

Despite all the promise of virtual cards replacing business checks, issuers haven’t realized the kind of growth the industry predicted years ago. But as companies continue to digitize their business-to-business (B2B) payments, virtual cards — buoyed by their appeal of embedding reams of invoice data along with the transaction — still offer financial institutions (FIs) plenty of opportunities to capture new volume.

The challenge is convincing buyers of corporate goods and services of the appeal of virtual cards. As an alternative to paper-based checks, virtual cards have been a lucrative payment stream for issuers, but their high cost for vendors looking to accept invoices — the payee — has actually hindered growth. Payees have often balked at interchange fees of 3% or higher, making large-ticket items unpalatable and smaller volume transactions relatively expensive compared with payments made through the Automated Clearing House (ACH).

On one hand, virtual cards are rapidly growing despite headwinds in the B2B invoice space. Virtual card volume is expected to reach $662 billion in the United States this year, a 25% increase from $531 billion in 2024, according to research by Accenture.

Yet that volume pales in comparison to $17.6 trillion in B2B transactions estimated to be made in 2025 via ACH, according to estimates by Windward Strategy, a payments consulting firm. Checks will account for $11.2 trillion and wire transfers $4.3 trillion.

Source: Windward Strategy

Embedded finance to fuel future growth

Virtual cards still hold untapped potential. A virtual card is a 16-digit account number that’s typically created for one purpose — to pay for a business transaction. There is no physical card, and processing works just like any other card payment. Plus, companies can instantly issue virtual cards to employees’ phones. Some other characteristics of virtual cards are:

• Control spending limits over a given time period
• Track expenses much easier
• Use for travel and entertainment purposes (e.g. bookings)
• Pay for subscriptions, online purchases

Virtual cards have believers among accounts payable managers. Nearly 6 in 10 (59%) of these managers said they use virtual cards to manage risk and control, according to a survey last year of 200 professionals by Versapay. About 6 in 10 (56%) said they use them to instantly create and issue cards to employees, and 52% said they do so to avoid unwanted charges by limiting cards to a single use.

Overcoming objections

To overcome the objection of the higher interchange fees with virtual cards, issuers should emphasize the efficiencies vendors can gain. Vendors tend to underestimate the cost of accounts receivable management and check reconciliation. The median cost of issuing a paper check for a business is $2 to $4, according to a 2022 study by the Association of Financial Professionals. Accounts receivable teams also have to spend time chasing down payments.

Virtual cards, by contrast, introduce efficiency in payment flows. Virtual cards also have an appeal to vendors since payments are guaranteed, unlike ACH or checks, which can bounce or be reversed. As a result, there’s much less collections work. Funds are also reconciled automatically, eliminating the manual work with general ledgers. And virtual cards come with robust remittance data, such as invoice number, purchase order number, payment amount, date, contact information, line-item details, and notes. The information is typically delivered via email, a secure portal or supplier network, or integration with enterprise resource planning (ERP) software.

Besides higher fees, there are other obstacles that issuers face to increase virtual card usage. One major challenge is the perception that integration of the technology is more complicated than other payment options. Secondly, fraud monitoring is often thought of as more difficult to track compared with other commercial cards.

But fears about fraud with virtual cards are overblown — especially with respect to checks. Single-use or limited-use numbers limit risk, as do predefined dollar limits, merchant category restrictions and expiration controls.

Another strategy for FIs to overcome objections is to entice buyers with rebates, akin to a cash back offer found with retail cards. This helps counter the competition with ACH and checks, and creates stickiness with customers.

“Overall, issuers must show their (virtual cards) value to customers,” King said.

Moving down the value chain

For companies that still resist the switch to virtual cards, FIs can offer value-added services that generate revenue. In order of decreasing profit potential, some solutions include:

Commercial payment network (CPN). With a CPN, a company can control what discount rate is charged to their merchant. In this case, the buyer and supplier negotiate a rate. The system uses ACH rails to fund the transaction, but typically these products provide an accounts payables interface that makes it easy to manage on the front end for the payer. So payers save versus using a straight virtual card. TSYS’ current version uses a closed loop network with a private label BIN and merchant acquirer. In a new version due out in late 2025, TSYS’ CPN will be able to stand in and serve as the general ledger account and tap into the lines of credit.

Automated Clearing House (ACH) payments. ACH for B2B is by far the fastest growing segment. One form of ACH for companies features cash concentration and disbursement (ACH-CCD), a type of transaction used primarily for single-use and recurring B2B payments as well as transfers between corporate entities. It’s a way to move funds electronically between different accounts, often for tasks like paying vendors, direct deposits or consolidating funds. But their lack of detailed remittance data makes them an undesirable option for vendors and payers.

FedNow and Real-Time Payments (RTP). These RTPs focus on speed, and that’s not necessarily a plus for payers, given that the transactions are irreversible. Some banks are also hesitant to migrate to this method since they would need to process instant transactions around the clock, fraud free.

Potential path for virtual cards

Whichever method customers choose to make their B2B payments, it’s a step up from paper-based payments in terms of cost, efficiency and fraud risk.

So even though the growth of virtual card volume has grown in recent years, the market still holds tremendous potential for issuers.

In the sales process, the key to overcoming objections will be highlighting the efficiency of moving toward digitization of paper checks. If companies forgo the virtual card path, issuers still have options to help win over clients and strengthen customer loyalty.

“Checks offer the least value, for both FIs and customers alike,” King said. “That’s why you’re seeing buyers gravitate toward speed of payment and embedded finance. Virtual cards offer the most compelling value for customers and financial institutions alike.”