Virtual Cards’ Role In B2B Payments Digitization

Even as B2B payments progresses toward digitization, paper checks stick around. Analysts and industry players generally have their bets set on ACH to help guide accounts payable toward electronic payments, and indeed, research suspects ACH payments will finally surpass paper checks in corporate payments (the Federal Reserve’s latest data found it already has).

Meanwhile, commercial cards, while they can help digitize B2B payments, remain pretty low on the totem pole of accounts payable payment rails. Research from NACHA found accounts receivable professionals expect cards to account for 12.5 percent of total payment volume by 2020, a small increase from the 11 percent for which credit and debit cards currently account.

Payment processors and credit card companies have recently made moves to promote the use of commercial card products, both physical and virtual, in accounts payable. American Express is one of them, tapping Regal Software Technologies as one of its partners in this initiative. The partnership enables businesses using Regal’s accounts payable technology to pay invoices using American Express virtual cards.

For Kofi Conduah, CEO of Regal Software, the true value of virtual cards largely exists in their security capabilities.

“It’s actually a more secure way for customers to pay their vendors,” he told PYMNTS. “There is no manual handling of payment data.”

Accounts payable can be a prime target for fraud and cybercrime. Analysis released by APEX Analytix last month found that 65 percent of companies don’t authenticate their suppliers, and 51 percent said they don’t require secondary review of high-value payments. There are multiple ways accounts payable fraud can occur, from business email scams to data hacks. But virtual cards, Conduah explained, can help address some of these issues.

“Accounts payable lends itself to fraud because you’re distributing large amounts of cash,” he said. “Controls need to be set in place. Virtual cards can provide a more secure way to do it, because there is a limit on the virtual card for the exact amount of a payment.”

A company paying a $5,000 invoice with a card that has potentially hundreds of thousands of dollars worth of credit is less secure, the executive explained.

“Virtual cards allow you to pay with the card worth only a certain amount,” added Conduah.

Using a solution like the one developed by Regal Software and American Express means the payment data that is transmitted between business partners is not only automated, it’s encrypted and, therefore, more secure, too, the CEO noted.

But the use of commercial cards remains low in accounts payable, despite its benefits of security and efficiency. Conduah said it’s likely due to the fact that, when companies use virtual cards without a more holistic accounts payable solution, suppliers are less likely to accept the payment tool because they have to manually input card and payment data. They need technology that supports straight-through processing instead, he noted.

Plus, the executive explained, there is often an overall reluctance to adopt electronic payments as a whole.

“[Use of paper checks] does continue, and one of the reasons is that a lot of corporate customers don’t have easy access to technology to help them to adopt electronic payments,” he said. “The perception is that it’s very difficult and time-consuming to change that process. While most customers agree that it is more efficient to move away from paper, it’s something they have always done and still perceive it would be rather difficult to switch from that method.”

Again, working with a solution that integrates capabilities to both send and receive electronic B2B payments means businesses don’t have to take on the internal responsibility of building their own infrastructures, Conduah said.

Virtual cards, he added, are part of that bigger effort in B2B payments to embrace digitization, electronic payments and automation.

“Invoice automation is a big component as well,” the CEO said, “and not having to handle all of that paper, and have paper float around the company.”