[Editor’s Note: It’s almost 2015 and, to cap off 2014 in style, Payables Place will run five of the best posts from the 2014 archives. We continue our “Best of” series today with our look into virtual payment cards that ran on October 29.]
It’s a safe bet that commercial cards are, if not common knowledge, then at least easily recognizable in the business world. The venerable purchasing card (p-card) has existed since the 1980s, with the corporate travel card in use since 1936, and the ONE card arriving a little over 20 years ago. One of the newest additions to the commercial card family—the virtual payment card—seems like it might strike a counterintuitive note.
The very name of the product, “virtual,” connotes something that exists only in the form of bits and bytes on a computer system. The words “payment card” evoke the image of a plastic credit card that you keep in a billfold to use for business purchases: corporate cards for travel, p-cards for office supplies, and fleet cards for fuel, for example. What then is this product called a virtual payment card?
A Garden Variety Credit Card?
Well, almost. Virtual payment cards, sometimes called controlled payment numbers or virtual account numbers, are linked to a charge account, but there’s no physical card that can access the chargeable funds. Instead, a unique 16-digit number is generated and inserted as a layer of security between the enterprise’s charge account and the supplier.
This 16-digit card number acts as a “token” of sorts. The supplier receives the virtual account number, charges the account, and payment is made like any other commercial card product. Settlement is conducted through the same card networks—VISA, MasterCard, or American Express—and the buying organization’s card account is charged for the payment. In this way, a virtual card operates precisely as a “card-not-present” transaction in the supplier’s system.
Unlike most commercial cards, however, virtual account numbers can be made to expire after a single transaction or after a set period of time. Declining balance cards have a similar functionality, but not on the per-transaction level. Once the virtual account number is used with the specific supplier, or the specific transaction, it expires and cannot be used again. This has the potential to make enterprise funds more secure, particularly with making payments through web portals.
Virtual Payment Card Types
There are, in general, three different types of virtual payment card. Each type has different characteristics, but they all share the same basic traits described in the previous section. The three types of virtual payment cards are as follows:
- Dynamic credit adjustment accounts are, like the name says, dynamic accounts that can be assigned to trusted suppliers. The dynamic part comes into the equation because suppliers have permanent access to the account, but can’t authorize payment until notification is received that the account limit has been raised to the payment amount. The primary benefit to this type of account is that suppliers don’t need to look up the account number every time—they already have it on file. US Bank’s Payment Plus for Buyers is one solution that offers this type of virtual payment card.
- Single-use accounts are created on a per-payment basis, instead of a per-supplier one. Single-use accounts feature the ability to lock down the supplier, amount, and timeframe as well. Like the name implies, these are one-time-use accounts where the supplier must log into a portal to access the unique card number that allows the supplier to receive payment. JP Morgan Chase, Citigroup, Comdata, and American Express are a few solution providers that offer single-use virtual cards.
- Buyer-initiated payments allow for the buying organization to “push” payment out to the supplier’s bank account, as opposed to the supplier charging the buyer’s account. The supplier doesn’t do a lick of processing with these types of accounts, which results in greater control on the buyer’s side of the process. Commerce Bank is one solution provider that offers buyer-initiated virtual payment cards.
Challenges of Virtual Cards
With all this talk of increased security and the ability to control spending down to the penny, it’s easy to imagine that virtual cards are a home run. Virtual cards can easily work well in card-not-present transactions where the enterprise is paying an invoice or buying basic indirect supplies online. Obviously, business travelers can’t use them for hotel reservations or rental cars; the virtual card doesn’t physically exist, and as such the merchant wouldn’t be able to match the virtual card number to a physical card.
Virtual cards are also still commercial credit cards, and possess the same negative for your suppliers of needing to pay the interchange fee to card issuers and card networks. As a result of this, some suppliers that don’t already accept credit cards may not be particularly keen to accept virtual cards.
Final Thoughts
Virtual cards are an evolutionary step for commercial cards. Ever since Arcot Systems received the first patent for one-time use credit card numbers in 2005, virtual cards have offered reduced fraud through improved security measures, tighter control over card spend, and reduced exception processing (the same benefits expanded on in the article “3 Benefits of Virtual Cards You Might Not Know”). That said, virtual account numbers are still credit cards, and come along with all the baggage that entails. If your enterprise already uses commercial cards, however, and is seeking a way to improve security, then virtual cards might be a good idea.
Check out these related articles for more on virtual payment cards:
6 Steps to Effective Supplier Onboarding with Virtual Payment Cards
