“Are you paying with card or cash?”
When asked that question, more consumers are taking out their phones—and many corporate card users are following suit.
By mid-2020, in the first few months of the COVID-19 pandemic, corporate adoption of virtual cards increased by 42%, according to a study done by the NAPCP, the association for the commercial card and payment industry. Overall, corporate virtual card spending grew from $221 billion in 2019 to $314 billion in 2021, according to Mastercard’s 2022 RPMG Virtual Card Benchmark Survey. That growth is expected to reach $584 billion in 2024.
Virtual cards are “cardless” credit cards that change their 16-digit number for each vendor payment transaction. This simple tweak on familiar payment systems gives businesses a faster, less expensive, more secure alternative to sending checks or using ACH—or automated clearing house—a system that allows direct payments between financial institutions.
The shift to automation with ACH payments was a first step for many during the pandemic, said Ashlee Horlacher, corporate card senior sales specialist at BOK Financial® . But that first step was just the beginning.
“ACH was a great solution from an operational standpoint, but now, companies are learning that they can really improve efficiencies through tools like virtual cards, which can also make an impact on their working capital,” she explained.
Interest rate pinch
One factor driving the progression from ACH to virtual cards is increasing interest rates, which are making it more expensive for businesses to borrow money. Consequently, companies are beginning to consider alternative options to access capital.
“Conversations with clients about working capital goals are very different than even a few months ago,” Horlacher said.
Chris Zieber, BOK Financial’s corporate card program manager, said companies are looking for working capital in a quicker fashion since the cost of credit has tightened. “There has been a retraction in the market with the higher cost of borrowing,” he said. “Corporate cards are being used as a short-term capital solution for companies in some scenarios.”
Virtual cards also enable your business to improve its financial position by giving you greater access to working capital, rebates and discounts, and may even help you avoid late fees.
In fact, that enhanced financial position was one of the main reasons companies chose to shift to virtual cards, along with reduced reliance on checks, streamlined organizational processes and enhanced cybersecurity, the Mastercard study found.
“Fraud is also a frequent topic of conversation,” said Premal Kadakia, treasury senior product manager at BOK Financial. “Companies are looking for ways to minimize fraud and become more electronic. Making a move to virtual cards implements more controls, eliminates the need to share bank account information with vendors and other companies, and makes the accounts payable process more efficient.”
Vendors also are needing funds faster, especially during an inflationary period. “The move from checks to ACH was great from an operational standpoint, but the ability to deliver instant, virtual payments is where many companies are going,” Horlacher said.
“Using a trackable, virtual system makes reconciling the data even easier,” Kadakia added. “And, companies are realizing that old-school check writing involves an unnecessary cost—in addition to an increased risk of fraud.”
Users drive modernization
In addition to an improved experience for the accounting team, field workers are also reaping the benefits when their companies adopt a virtual card approach.
“Clients are asking for more seamless expense management functionality for workers out in the field or those who travel,” Zieber said. “Being able to snap a photo of a receipt and upload into the expense management portal streamlines the process.”
As is the case for much of the business world, the users push an industry to innovate. “This industry is constantly evolving,” Kadakia said. “It was stale for a long time, but we’ve seen a lot of change in the past five to 10 years that are really driving behavior change and technology adoption. User experience is really key to the continued evolution in this space.”