What Is a Virtual Credit Card? A Guide for B2B Suppliers

Digitization is spurring a shift in the types of payments business buyers use. Notably, these buyers are moving away from dated and costly payment methods like paper checks, and embracing digital payment methods like virtual credit cards.

This trend is expected to continue. In 2021, the global value of virtual card transactions reached $1.9 trillion. By 2026, this number is projected to reach $6.8 trillion, a near 260% increase. And while the number of B2C transactions far outnumber B2B transactions when it comes to virtual credit card use, B2B payments represent most of the actual dollar value passing through virtual cards.

Although projected to make up only 1% of virtual credit card transaction volume in 2026, B2B payments would make up 71% of the total transaction value.

These numbers are staggering and indicate that there’s a growing chance that many of your B2B buyers already want to pay with virtual cards (or will, in the not-so-distant future).

But what precisely is a virtual credit card and how does it differ from a physical credit card? What’s attracting B2B buyers to this payment method like moths to a lamp? What value is there in you accepting virtual credit cards—and your buyers using them?

These are all questions we intend to answer in this guide. Jump to a section to learn more:

• What is a virtual credit card?
• How do virtual credit cards work?
• Are virtual credit cards secure?
• The pros and cons of virtual credit cards
• The costs of accepting virtual credit cards
• Ways to reduce the effort of accepting virtual credit cards

What is a virtual credit card?

A virtual credit card is a digital payment method intended for online and card-not present transactions. It’s an automatically generated 16-digit card number used in place of the physical credit card number it’s associated with.

Through a virtual credit card provider, a buyer can generate as many virtual card numbers as they want off the same physical card.

A buyer will typically use a virtual credit card number only once—however, there are exceptions. They can also put controls on a virtual credit card number that limits its use based on a series of parameters, including:

• The types of purchases it’s used for (based on merchant codes)
• The time period it’s valid for
• The dollar amount it can cover

There are two main types of virtual credit cards: single-use and lodge cards.

A single-use virtual credit card is, as the name suggests, a card whose number can only be used once. This helps buyers track and control their spending and acts as a layer of security preventing the card from being used for nefarious purposes.

A lodge card, conversely, can be used multiple times. While it’s possible to set controls on these cards such as expiration dates and credit limits, the fact that they can be used more than once increases their vulnerability to fraud.

💡Did you know: virtual credit cards are supported by the major card networks like American Express, Visa, and Mastercard.

What’s the difference between a virtual credit card and a regular credit card?

The obvious difference between a virtual credit card and a regular credit card is that you can physically hold and touch a regular credit card, whereas you can’t with a virtual card. By this same logic, you can physically lose a regular credit card or have it stolen. This risk isn’t a factor with virtual cards.

The actual experience of paying with a virtual credit card, however, is essentially the same as paying with a credit card online. Virtual cards can be accepted by any seller that accepts regular credit cards, and they’ll be handled like any other card-not-present transaction.

Looking to learn more about how credit card processing works? Check out our guide.

Why do people use virtual credit cards?

Business buyers like paying with virtual cards because they’re cheaper than paper checks, help them control their spending, integrate well with their accounts payable software, and offer additional layers of security.

In a survey we ran with Gartner Peer Insights, respondents identified these as benefits of paying invoices with virtual credit cards in that very order.

When asked which of the following they agree are benefits of paying with virtual cards, here’s what respondents (comprised of primarily C-suite leaders) said:

• 50% said it’s cheaper to make payments with virtual credit cards
• 37% said virtual credit cards make it easier to control and manage spending
• 30% said virtual credit cards are already supported by the accounts payable software they or their customers use
• 26% said virtual credit cards are more secure than physical credit cards

How do virtual credit cards work?

Virtual card numbers are generated using tokenization. Tokenization is the process of turning sensitive data (like credit card information) into a unique identifier. Using cryptographic technology, this process helps ensure the original data the token is based on can’t be accessed.

Each virtual credit card number is a unique token. It can be used to make a purchase, but the original credit card number it’s linked to is completely concealed.

Many accounts payable software vendors can integrate virtual card issuance into their platform. This allows business buyers to easily generate card numbers intended to pay specific invoices.

Are virtual credit cards secure?

Because of tokenization and the potential to place strict controls for spending, virtual credit cards are among the most secure payment methods for B2B payments.

With credit card fraud being significantly higher for card-not-present transactions—happening 81% more frequently compared to point-of-sale transactions—these are added layers of security that no business can afford to overlook.

Because buyers will typically generate a new number for each payment, this makes B2B virtual credit cards less vulnerable (but not immune) to fraud.

When asked what impact they anticipate the growing use of virtual credit cards will have on B2B transactions in the next 5 years, here’s what one finance leader had to say (from our survey with Gartner Peer Insights):

“Virtual cards will make payments safer and hassle free,” C-Suite, Finance, Company Size: 5001 to 10,000 Employees

If a fraudster does manage to get access to a virtual credit card number, they wouldn’t get much value from it because the number would mostly likely be expired or have controls in place to limit spending. If a buyer finds that their virtual card number was compromised, they can cancel it in just a few clicks.

And because their physical credit card number is imperceptible from the virtual credit card number that was breached, this means the buyer doesn’t have to go through the hassle of canceling the actual card.

From suppliers’ perspective—the recipient of the virtual credit card payment—minimized risk of card fraud helps avoid the potential for chargebacks, which can be costly.

The pros and cons of virtual credit cards

There are numerous advantages to paying with—and accepting payments made with—B2B virtual credit cards. There are also some disadvantages. These include:

What is the cost of accepting B2B virtual credit card payments?

Virtual credit cards cost buyers very little, as the issuers charge minimally for their services and the actual creation of the card costs the buyer nothing. For suppliers, however, accepting virtual cards is expensive.

For many businesses the main barrier to accepting credit card payments is the high cost of interchange fees. Interchange is what’s paid to the issuing bank (the cardholder’s bank) by the acquiring bank (the merchant’s bank) to cover any costs associated with the risk of approving the payment.

Interchange fees make up around 80% of the credit card processing fees merchants pay. The average credit card has an interchange rate of about 1.81% (compare this with the average interchange rate for a debit card, which is 0.3%).

The level of interchange you pay will depend on the conditions of that particular transaction (e.g., the card type and the way it was processed). The “riskier” the transaction, the higher the virtual credit card fees. Card-not-present transactions (payments made where the cardholder is not physically present, such as online sales) have higher interchange fees because they’re deemed to be higher risk.

Virtual credit cards are solely used for card-not-present transactions, meaning merchants will pay higher than average interchange fees to accept them.

There are also soft costs to consider when accepting virtual credit cards, including the labor required by accounts receivable teams to process these payments and apply them to invoices.

Typically, when a buyer pays with a virtual credit card, the supplier’s AR team will receive the card number in the body of an email, which they’ll have to key into their processing system themselves. They’ll also receive the remittance advice in an email—sometimes separately—and typing that information into their enterprise resource planning (ERP) system is equally manual.

How to reduce the cost and labor of accepting virtual credit card payments

There are steps you can take to reduce the cost of accepting virtual credit card payments—both the high levels of interchange and staff effort involved.

Interchange optimization is one such way. This is the process of fine-tuning the conditions of a transaction according to best practices to qualify for the lowest interchange rates possible. This is achieved by sending along more data about the transaction when it’s processed.

The issuing bank (who collects the interchange fees) wants as much assurance as possible that the risk of extending credit is low. The more data you can provide about a transaction, the more the bank will feel secure.

The most basic amount of data you can pass along with a transaction is known as Level 1 processing. By passing along more data with the transaction, you can qualify for Level 2 and Level 3 processing, which helps reduce your rates.

When you process payments through Versapay, we automatically send Level 2 and Level 3 data along with every transaction. That’s because we integrate closely with your ERP and can seamlessly pull the information that’s going to help you qualify for lower interchange rates (like invoice numbers, number of items purchased, and customer codes).

As for the labor involved with accepting and reconciling virtual credit card payments, you can greatly simplify the process with accounts receivable automation software. When you accept payments through Versapay’s customer payment portal (virtual cards included), customers provide remittance information along with their payment, which gets updated in your ERP automatically.

For virtual card payments you accept outside of Versapay (as is the case when customers make virtual credit card payments through their AP software), we can help automate your processing and reconciliation too. Learn more about our ePayment Delivery Service.

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Capture more revenue by catering to your buyers with a strong preference for virtual credit cards with the help of automated virtual credit card acceptance software.