Virtual Credit Cards for businesses have been on the rise globally. Accenture projects virtual card spend to grow to US$355 billion by 2022, up from US$136 billion in 2017, marking a 21% compound annual growth rate (CAGR). Further to that, Juniper Research found that business-to-business (B2B) virtual cards will account for almost 80% of virtual card transactions by value, as that transaction value doubles over the next 5 years.
This increase in virtual card spend is largely propelled by the pandemic, where almost every government introduced a lockdown on its citizens and people started transacting remotely and purchasing online. In 2020 alone, COVID-19-driven remote working produced 11% growth in transactions. It is clear that virtual credit cards are popular, so what is a virtual credit card and how does it work to benefit B2B companies?
A virtual credit card is created entirely online. It has a randomly generated 16-digit number, a card verification number, and an expiry date, much like the traditional card. It is also accepted anywhere a traditional credit card is usually accepted, but without the need for a physical card.
However, where traditional financial institutions have difficulty launching virtual credit cards to small and medium-sized enterprises (SMEs) because of rigid credit parameters, FinTechs step in to do so with their more flexible lending criteria.
Here are the 3 things SMEs need to know about virtual credit cards:
(1) Single use or Recurring cards
Single use virtual credit cards are cards that expire the moment the payment is made. For transactions across this type of card, different card numbers are used every time. This means you will never reveal your real account number to any vendor or retailer. In some cases, companies can choose to set a predetermined spending limit so as to prevent overcharge in the case of a fraud or employee mistake.
On the other hand, recurring virtual credit cards are available for things like subscription payments to a specific vendor. They are helpful for monthly or yearly payments for software or corporate news subscriptions that require a scheduled charge to the card, making it convenient and easy to keep track of yearly, quarterly, and even monthly payments.
However, these cards are still different from a traditional physical credit card in that recurring virtual credit cards still have their own account details, keeping the potential of exposing the company to fraud low.
(2) High security reduces risk of fraud
Virtual credit cards contain temporary details usually tied to a single use or single vendor, making them safer for use. This is because the card is considered useless after one use or only available for use with one specified vendor, making it more secure than physical corporate cards where the same card details are shared repeatedly with multiple vendors multiple times. Furthermore, virtual credit cards do not contain hard data or personal information that cyber attackers typically go after.
With an increase in digital transactions since the pandemic, generating as much as 10 years’ worth of growth in just four months, it is no surprise that cyber fraud has also soared as a natural byproduct. Globally, losses from payment fraud have tripled from over US$9 billion in 2011 to over US$32 billion in 2020, while Singapore alone reported a 460% jump in unauthorised online banking and card transactions in 2020, amounting to US$150 million in fraud.
Many of these fraudulent transactions were a result of cyber hackers phishing for credit card details. Once an unwitting employee clicks on a phishing email and is duped to reveal the traditional corporate card numbers, the card and bank account are as good as gone. And if this is the only corporate card used across all channels within the company, it will mean extra time put into cancelling the card with the bank, applying for a new one, and informing all vendors to stop charging to that card as it is no longer in use. However, virtual credit cards provide online retailers with dynamic information such that for every use of the virtual credit card, the verification data is different.
(3) Streamlines Accounts Payable (AP) processing and Budget Control
Virtual credit cards which track transactions in real time reduces the need for AP teams to manually keep an eye or process purchase orders (POs) and invoices it receives from vendors. For many SMEs who operate on lean teams, being able to streamline their AP processes and manage their often tight budgets is very important. However, one of the common risks of AP management is relying too heavily on error-prone manual processes to approve requisitions, scan supplier invoices, and issue payments.
According to the Institute of Financial Management, companies that manually process fewer than 20,000 payments per year have a median cost per invoice of US$15.97, while those that use automation have a median cost per invoice of US$12.98. Additionally, companies that manually process between 20,000-100,000 payments per year have a median cost per invoice of US$6.10, while those that use automation bear a median cost per invoice of US$4.24. Using automation in AP management can help to reduce a significant amount of time on repetitive work that can be used on strategic tasks instead.
Furthermore, because Finance teams in SMEs need to be prudent and maximise spending across all departments, AP teams can set a spending limit on each virtual credit card given to employees. This allows them to see how much each employee is spending, for what purposes, and to stop any overspending. And since virtual credit card payments are executed instantly, SMEs are able to hold on to cash, thus creating a stronger working capital flow that is crucial to keeping the business running.
If virtual credit cards are introducing convenience and higher security, as well as streamlining the way payments are made for suppliers and vendors, then SMEs need to jump on the bandwagon so as to ride on these benefits as soon as possible. Virtual credit cards are leading the way for fintech trends in small businesses, and demonstrate clear impact on business operations. Although they do not have to be adopted as a standalone solution, SMEs can consider virtual credit cards as part of their digital revolution.
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