Firms could unlock data and trapped credit from virtual cards

Virtual cards used for B2B transactions can offer tailored payment solutions for customers, while suppliers could gain instant payments and enhanced data, according to several firms using the payment method for B2B transactions.

What is this article about? The use of virtual cards is growing among businesses, but more benefits could be realised for everyone if companies shifted their focus away from just the customer benefits and towards supply-side advantages. Rebalancing of the conversation is required.Why is this important? The need for better data analytics, instant payments and a tailored experience could be possible if both the suppliers and customers of a business chose virtual cards as a payment method.What’s next? Payments companies need to educate suppliers and adapt their technology platforms to enjoy the benefits of using virtual cards as its popularity grows.

Companies have sold virtual cards to their corporate customers on the promise of rebates, enhanced security and better data analytics. However, as payment companies explore what the next big push for the industry is, many are looking at leveraging the supply-side benefits of this payment method. The value of virtual card transactions has soared to £1.6 trillion in 2021 and is expected to reach £5.7 trillion by 2026, according to a whitepaper published by The Payments Association. The boom in the use of virtual payments over the past few years has not only been attributed to the pandemic, but also to the positioning of customer benefits by payment companies. A key obstacle for payment companies has been supplier acceptance of virtual cards. Unfamiliarity with the benefits virtual cards can bring has played a large part in suppliers’ reluctance to accept them in their payments systems. “A lot of the time, the supplier is probably unaware of the fact that they have virtual cards as an option and definitely unaware of the benefits that it could present to them,” says Oliver Fellowes, director of business development, commercial UK&I at Mastercard. Detailed payment information can not only make payment tracking and reconciliation easier, but also save suppliers the time that it would have taken them to track those payments manually. Therefore, many of the benefits virtual cards bring to buyers, such as enhanced data, can also be leveraged for suppliers. “You can sign up as many corporate buyers as you'd like to use a virtual card, but if their suppliers aren't accepting it, then none of that volume actually flows through,” says Fellowes, who was speaking at The Payments Association’s webinar on the power of virtual cards. Andrew Auden, senior director of B2B UK and Europe at FIS, says that as the market matures, there is now a shift to a more equitable balance between the buyer and supplier.

Education leads to acceptance

Fellowes says that one of the biggest misconceptions around virtual cards is that one payment type can fit all B2B models, when virtual cards should be specifically tailored to the needs of each supplier. For payment companies, this may mean having flexibility in pricing options. “Rather than there just being an arbitrary rate set for any B2B payment, we can actually price it depending on some of the particular factors that drive the commercials behind any payments”, says Auden. These factors may include transaction values, number of payments, and whether payments are cross border or not. In addition, payment terms could be tailored and adjusted. In some cases, this could help release cash that is often awaiting payment for several weeks or months. Fellowes explains: “Rather than use what we often see as 60-day plus payment terms, especially among smaller suppliers, they could be proactively having a conversation with their customers to pay them immediately and benefit from that untapped credit line.”

The burdens of onboarding

After articulating the benefits of virtual cards to suppliers, the next obstacle towards adoption is evaluating how that technology can adapt into already entrenched processes. Payment companies are trying to tackle the virtual card adoption issue with ‘reverse supplier onboarding’. “The problem is doing what we're calling a reverse supplier onboarding campaign and that is starting with the supplier and then going to the buyers rather than what's been done traditionally which is the reverse of that,” says Fellowes. He explains that a solution that has been used to ease the process of onboarding virtual cards is straight-through-processing. Katie Mosley, senior director at Coupa Pay, says the industry will continue to see growth in things like straight-through-processing to help ease the pain on the supplier side. “We've seen tremendous growth over the past five or so years and that will continue and by making the supplier’s life easier,” she says. In addition to straight-through-processing, bridging the gaps between procurement and payment teams can further ease the burden of onboarding virtual cards and their use. “I find fierce silos between automatic account payable departments and procurement teams. Helping bring them together so that they understand the value for the suppliers and their procurement team is really important,” says Mosley. If payment companies can articulate the benefits of virtual cards to suppliers and ease some of the burdens of onboarding, then virtual cards may be on track to reach its £5.7 trillion by 2026. https://www.youtube.com/watch?v=bIQImGAD5rk