Virtual credit cards are an increasingly popular digital payment method amongst B2B buyers. In this article we discuss what virtual cards are and what's behind their booming popularity.
In 2021, the global value of virtual card transactions reached $1.9 trillion. Projected to grow at a CAGR of 29% over the next five years, virtual card transactions will reach $6.8 trillion in 2026. B2B payments currently account for the majority of that value, and that is expected to remain the case. This same research projects B2B payments will account for 71% of virtual cards’ transaction value in 2026.
In view of this, there’s a good chance that many of your B2B buyers already want to pay with virtual cards. They are one of the top payment methods used for B2B transactions—and one of the most secure—so a familiarity with this payment method is necessary for your accounts receivable (AR) team.
In this article, you’ll learn:
Let’s start by understanding what virtual cards are.
What is a virtual credit card?
A virtual credit card is a digital payment method intended for online and card-not-present transactions that allows buyers to pay suppliers using an automatically generated 16-digit card number.
A buyer can typically only use a virtual card to make a virtual payment once. Plus, there are often a number of controls that limit their use, including:
The types of businesses where they can be used
The time periods they may be used in, and
The dollar amounts they can cover
Virtual cards vs. physical credit cards
You may be wondering: how do virtual cards differ from physical credit cards?
The obvious difference is that you can see and touch a physical credit card—you can’t do that with a virtual card.
In terms of how the cards are used, a physical card can be used as much as the buyer wants until its expiration date—which may be a few years out. In contrast, a virtual card can only be used once or a select number of times.
What are the different types of virtual credit cards?
There are two main types of virtual cards: single-use and lodge cards.
A single-use virtual card is, as the name suggests, a card with a number that can only be used one time. You can create tight controls for a single-use virtual card, further reducing the risk of it being used for nefarious purposes.
A lodge card, on the other hand, provides the buyer with a number that can be used multiple times. It’s possible to set controls through expiration dates and credit limits, but the ability to use the number multiple times increases the buyer’s exposure to vulnerabilities and heightens the risk of fraud.
Are virtual cards a secure payment method?
Since the onset of the COVID-19 pandemic, the FBI has seen cybersecurity complaints increase by 200-300% over pre-pandemic levels. With that being the case, it’s imperative that companies use secure payment methods to reduce their risk of fraud—virtual cards fit the bill.
Virtual cards are among the most secure payment methods, topping the list along with ACH.
A new number is typically generated for each payment, making the buyer less vulnerable to card fraud
Virtual cards are, well, virtual, with no plastic, no chips, and no PINs. The card details aren’t shared with the merchant, lowering risk in the event of a breach.
As stated earlier, businesses can implement strict controls on how virtual cards operate—these make it extremely challenging for someone to fraudulently use a virtual card.
Why are virtual credit cards increasingly popular with B2B buyers?
The shift to virtual cards has happened largely due to increasing demand for this payment method among B2B buyers. This is because:
Virtual cards are more secure than physical credit cards
A virtual card can be set up in a way that prevents it from being used for any unintended purposes—by someone inside or outside your organization. For example, consider a buyer wanting to use a virtual card to pay for a specific invoice. In that case, the dollar amount can be set to the amount of the invoice and certain merchant categories can be blocked.
It’s easy and cheap to make a payment with a virtual credit card
There are many companies that still rely on checks to pay their invoices, but virtual cards prove to be a far superior payment method. For many businesses, it’s much more convenient to pay digitally than with a check (one reason why now is the time for suppliers to embrace digital payments). They can issue a payment right then and there rather than have an AR clerk send it in the mail.
Paying invoices with virtual cards is also cheaper. Virtual card issuers charge minimally for their services, and the actual creation of the card number costs the buyer nothing. By contrast, processing and mailing costs for checks can easily add up over time. According to Bank of America, each check can cost businesses between $4 and $20 on average to issue.
Benefits of accepting virtual cards for B2B Sellers
By accepting virtual payments, your company can capture more revenue, as there are buyers who have a strong preference for virtual cards. They may even take their business elsewhere if you don’t let them pay using their preferred payment methods.
Here are a few more benefits to accepting virtual credit cards:
You’ll minimize your exposure to potential fraud risk. A physical credit card can easily be stolen and used fraudulently, opening up your business to potential chargebacks, which can get very expensive for suppliers.
B2B buyers that currently use paper checks will start using virtual cards over the next few years, saving your business from the hassle of dealing with paper checks.
With help from accounts receivable automation vendors like Versapay, you can automatically reconcile virtual card payments with your accounting system.
Learn more about how Versapay helps suppliers speed up and automate payments, reduce manual AR processes, increase cost savings, and speed up their cash flow, here.
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