Commercial cards are an established fact of business life, with all the varieties credit card issuers provide. There are fleet cards, purchasing cards, travel cards, ONE cards, meetings cards, and even project cards. One type of commercial card that’s a bit unusual, however, is the virtual card. Like the name suggests, the virtual card is different from its brethren: it’s a card number without an actual card.
At its core, a virtual payment card is a method of masking the true information of a charge account. In this way, you can use the virtual card either with an established commercial credit card program or on its own, simply attached to a charge account. Unlike purchasing cards, which are perhaps the closest relative, virtual cards—sometimes called “controlled payment numbers”—are useful for the high-value purchases where paper checks and other electronic payment methods typically dominate.
Adding virtual payments into your accounts payable workflow is one way to help your business pay invoices more efficiently. But outside of quicker supplier payments, there are other benefits to virtual payments. Three such benefits are reduced exception processing, better transaction detail, and reduced fraud. Let’s look at each.
Reduced Exception Processing
The three main kinds of virtual payment cards all come with built-in financial controls that reduce time-consuming and costly exception processing. Whether it’s a single-use or a dynamic credit control virtual card, the buyer can set the payment amount right down to the penny. This means that the account will not process payment for any amount higher or lower than the pre-set amount; such a control virtually eliminates the possibility of either short payment or overpayment.
Better Transaction Detail
Virtual payment cards aren’t the only ePayment method; two of the most popular alternatives are ACH and wire transfer. The problem with both of those methods, however, is the lack of rich remittance information. ACH provides only 80 characters of space to add in transaction details—a legacy of the IBM punch cards that the technology used to run on—while wire transfers are space-limited to 140 characters.
Virtual payment cards, like their commercial card relatives, have no such space limitations. While not necessarily provisioned with the detail of Level 3 data, virtual cards in some cases provide extensive customization for buying organizations. Citigroup, for example, provides up to 30 different custom fields in its Virtual Account Number program—this can potentially simplify reconciliation through providing data such as invoice number, line-item detail as to what was bought when and by whom, in addition to basic payment amount information. This has the potential to cut down on manual reconciliation, and can speed the transition to ePayments because—unlike other systems—virtual payment cards don’t require special software. If your supplier already accepts purchasing cards, then they’ll accept virtual cards without a problem.
Reduced Fraud
Paper checks remain one of the most fraud-susceptible financial instruments currently used in B2B payments. Despite this, Ardent’s research shows that 42% of B2B payments are still made with paper checks. This is partially because paper checks can provide more robust information than other ePayment methods, but also because supplier enablement is one of the key drawbacks to ePayment methods. In order to accept ACH, for example, suppliers must spend money to update their systems. Chances are that suppliers—which tend to be small- and mid-sized enterprises—don’t necessarily have the tech budget to make this change. For that matter, ePayment initiatives can suffer from a lack of executive interest as well.
Virtual payment cards are almost the exact opposite; the rich payment controls available mean a buying organization can “lock down” the virtual payment card to a specific amount and enact a maximum credit limit for every payment. Buying organizations can also set a time limit on every virtual card in most programs; if a thief were to get a card number outside the time window—say 30 days—then the card number is little more than a chain of unrelated numbers.
Final Thoughts
Virtual payment cards, while still a charge account (just without a physical card), offer numerous benefits to buying organizations looking to move into paying invoices with electronic methods as opposed to spending the money on printing and mailing paper checks. To be frank, the simplified pathway to ePayments acceptance and transaction limits are benefits of commercial cards in general and not solely virtual cards. Where the virtual card goes above its commercial card relatives is in the ability to mask account information.
That said, it’s still a credit card product, and carries the same interchange and processing fees that all commercial card products do. Virtual cards also aren’t a slam-dunk for supplier acceptance across the board. If your supplier doesn’t accept credit cards or doesn’t have an arrangement with your particular card network, then the virtual account number is useless in that case. For that matter, virtual cards can’t be used for card-present transactions or in cases where someone has to pick up a reservation—the account used to pay won’t match the number on the card—which is a fairly strict limitation on their efficiency.
If you’re committed to a card solution, however, and plan to use the card only for online, email, or phone purchases, then a virtual payment card can offer peace of mind. Between that and the increased security, reduced exceptions, and better transaction detail, the value proposition of virtual cards is clear to see. Just remember that nothing is a slam dunk in accounts payable, no matter how good it seems.
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