What Is a Virtual Credit Card?

Author: Maria Line, Head of Commercial Card

Let’s take a step back. There are a lot of questions around virtual credit cards. Here we look at what a virtual card is and how it works.

Consulting firm Deloitte predicts that emerging technologies will change the way businesses handle finances over the next three years, creating opportunities to streamline payments processes and improve security. Virtual cards have rapidly emerged as one of the most beneficial ways businesses can capitalize on technology — by optimizing process flows, increasing security and reducing costs.

At its core, a virtual card simplifies the accounts payable process while adding extra security features to mitigate fraud. Unlike a traditional credit card, virtual cards are leveraged digitally. A Visa or Mastercard temporary account number, as well as a security code, is randomly generated and sent to suppliers for payment.

Exploring the Advantages of a Virtual Card Solution

While traditional payment methods, such as checks, are still common, virtual cards offer powerful advantages, which include:

Decreasing Fraud
With check payments or ACH transactions, users expose company data when payments are made. In addition, vendors may store this information digitally and give hackers opportunities to gain access to banking information.

Virtual cards employ extensive controls, including encrypted data, to create a more secure transaction. In a 2022 AFP survey, companies reported only 3% fraud related to virtual card payments, compared to 66% with checks and 37% with ACH payments.   

Optimizing Cash Flow
By taking advantage of the payment terms related to a card program, businesses can extend days payable outstanding, allowing the company to hold onto cash longer and grow interest. Taking this approach may make it easier to manage cash flow, an important principle when it comes to growing your business and qualifying for financing.

You can also increase supplier adoption of card payments by sharing the float with your suppliers.

Improving Payments Processes
Since each virtual card number is unique, it becomes easy to track and reconcile payments. For companies still using a manual reconciliation process, introducing a virtual card program can deliver immediate efficiencies. Leveraging automation through integration with a new digital payments system or using an ingestible reconciliation file will allow the transactions to match back to the payment instruction file provided.

Reducing Payments Processing Costs
Businesses using checks to make payments incur greater labor and financial costs. According to AFP, the average organization spends four hours a week processing checks.

In addition to the administrative costs, when using checks your business is also paying for materials and postage. On average, the cost to issue a paper check is $38 (not including hidden costs like lockbox fees, tracking and escheatment). In comparison, the average cost to make a  virtual card payment is $13, according to the AFP 2022 Payments Cost Benchmarking Survey. 

Earning Rebates
With virtual cards, you may earn flexible rebates with additional spend or accelerated payment terms while increasing efficiencies throughout your payments process. Rebates can add up to thousands of dollars, allowing you to fund internal projects or pay for additional resources.

The Future of Payments

The evolution of digital technologies and demand for solutions that enable efficiency and convenience across business operations spurred virtual card growth to nearly $200 billion in North America prior to COVID-19.¹ This growth is expected to continue, with estimates that the virtual card market will hit $500 billion by 2025.² 

It’s clear that virtual cards can offer an excellent way for businesses to optimize internal payments processes while reducing costs and fraud and enhancing vendor relationships.

Learn more about FNBO’s virtual card solutions. And, check back for a post examining how interest rates impact virtual card solutions.

About the Author

As the Head of Commercial Card, Maria Line optimizes commercial card programs to help organizations streamline their payments processes. She is also responsible for building FNBO’s supplier enablement organization, an initiative designed to provide further value to commercial clients. Her goal is to create a best-in-class experience for each and every customer.