Growth in the B2B payments sector is primarily driven by technological innovations, consumer behaviour changes, new market entrants, and market infrastructure changes. Companies are constantly looking for more convenient ways to make payments and with the latest technological advancements in finance, the options seem to be expanding. The demand for better digital banking, secure online payments and streamlined spend management is leading to new partnerships and innovative solutions in the Virtual Cards space.
According to the recent Juniper Research report, Virtual Cards: Consumer & Business Adoption, Competitive Analysis & Market Size 2020-2025, 80% of virtual card transactions by value, will come from B2B virtual cards. The transaction value is also estimated to double over the next five years.
While COVID-19 has reduced global economic activities, the pandemic is likely to accelerate the use of virtual cards for B2B payments. During the initial lockdowns, B2B transaction volumes grew by 11%. Although it is estimated that spending levels will drop by approximately 4%, most of this is primarily associated with the fall in business travel and travel-related spending.
With a surge in new solutions and markets that demand it, we beg the question, are virtual cards the future of B2B spending?
What is a virtual card?
To explain the importance of virtual cards in B2B transactions, we need to understand what a virtual card is and how it works. A virtual card is just like a regular credit or debit card – it has a unique card number, an expiry date and all the relevant information you need to make online purchases.
Unlike a physical card that you carry in your wallet, a virtual card exists online and makes for a convenient way to manage budgets and categorise payments. Moreover, any compliant entity or individual can generate multiple virtual cards under a single account. You can also assign specific rules and guidelines which can dictate the functionality of a virtual card.
For example, you can create a single-use card that doesn’t accept payments after the first transaction, or you can create virtual cards for a particular spending category and limit their use to specific merchants. You can also choose to create virtual cards built for recurring payments like subscriptions or utility bills and add fixed or flexible spend limits per card. Finance teams can monitor and control spending, produce detailed reports, and set automated reconciliation processes via rich integrations.
Since all these functions are available online, administrators and managers get complete access and visibility in real-time, from any place (including when working from home). Virtual cards can be linked directly to a corporate bank account, a credit or debit card, or a pre-paid virtual wallet.
Let’s dive into some of the reasons why an increasing number of B2B spend is being done via virtual cards.
Here’s something to think about. We refrain from carrying important documents like our social or birth certificate all the time. Usually, we carry a copy of the original document. Virtual cards give a similar form of security where you don’t have to worry about the repercussions of a physical card being stolen.
Virtual cards avoid unnecessary interruptions since there is no downtime in case of fraudulent activity. If you have suspicions of fraud or a hack on your account, you don’t have to wait for a new card. Just cancel your virtual card and issue a new one instantly. Not only are virtual cards resilient to external privacy invasions, but they also help mitigate internal fraud via spend control and approval processes.
On the contrary, corporate credit cards, especially ones with high limits, are more susceptible and usually targeted for fraud and monetary damage. It is estimated that online fraud will hit $25.6 billion by the end of 2020. The safety of your card’s information is a serious matter and virtual cards are a great solution since they are easy to replace, cannot be lost or stolen and personal data is stored remotely.
Then there is the added requirement for safety due to COVID-19. The adoption of digital payments over physical cash and cheques puts virtual cards right at the center of social distancing when it comes to payments.
It is costly to have people on the payroll to collect paper invoices, print receipts, reconcile spend, etc. Paper cheques alone make for $12.5 trillion of the annual business spend in the US alone. Going digital for B2B payments helps companies save a lot of money on raw materials and human capital alone.
Virtual cards help reduce costs on multiple fronts. Firstly the ability to add fixed or flexible transaction limits per card means that unsanctioned transactions will never go through, giving you the chance to investigate and make changes accordingly. Better control and visibility over your transactions translates to fewer spend leakages. Plus, the added level of security prevents the loss of large sums to potential fraud.
Another significant saving opportunity is on the FX and processing fees. Most credit cards from local banks are issued in your local currency. However, the currency you transact in when making an online purchase may vary. Consider subscription payments where most of the SaaS companies charge customers in US$. If the credit card you use is not a US Dollar card, you end up paying additional FX and processing fees of up to 3.5% per transaction! Now, these charges can add up fast and make for a large portion of wasteful spending. Virtual cards can be issued in various currencies giving you the option to make payments in multiple currencies and avoid any additional bank charges.
Using virtual cards for online purchases makes for a safer and simpler process without running the risk of any malicious use. Employees can find a product or service that they want to purchase online and send a request to their manager or admin for approval. The administrator can instantly receive a notification via a web app, mobile app, email or SMS and proceed to either reject or approve the request. The admin can then immediately issue a virtual card based on the request and assign it to the employee, and that’s it! The employee can now access the virtual card to make online purchases, just like a regular card.
This entire process guarantees complete visibility and control over payments while empowering employees to get the tools and services they need much quicker. There are no long waits to receive a card, no cumbersome procurement processes, and no manual reimbursement required. Since virtual cards allow businesses to manage all expenses on a computer or mobile device, all transactions can be viewed, approved and controlled with just a few simple clicks.
Real-time spend visibility
To accurately track your finances and streamline your business, you need to have quick access to your company spend, as they happen. Virtual cards give instant visibility for every transaction, rendering analog methods useless. Companies can get a birds-eye view of all transactions across all team members and functions. You can also get granular usage data, spend insights, and track every single purchase, all updated in real-time.
All this rich data allows your finance team to track spending patterns, accurately forecast spend and optimise budgets on the go. Data can be easily filtered by categories such as department, merchant, employee, team, etc. Companies can even export reports in various formats and set customised alerts for swift action.
Real-time visibility empowers companies to make agile decisions and stay on top of their business spend.
Many businesses struggle with expense management. Smaller companies usually rely on one corporate credit card, which has to be shared amongst the entire team. This makes things extremely problematic when it comes to reconciliation and puts unwanted strain on employer-employee relationships. Instead of sharing one plastic card, companies can generate unlimited virtual cards to cover all their requirements with set monetary amounts.
Since all the transaction data resides online, it is extremely simple and easy to integrate with online accounting tools and software such as Xero, Quickbooks, NetSuite, etc. And just like that, companies can experience the efficiencies of automated and instant reconciliation. Automatic categorisation basically lets the old expense report take care of itself.
Real-time accounting and live reporting allow business owners to clearly view how much funds are currently available, how much is being spent, and what are the things that money is being spent on. Since every transaction is tracked and approved, there is no need for laborious and time-consuming excel sheets, printed invoices and manual reimbursements.
Virtual cards are also proving to be extremely useful for B2B payments while the business concentrates on growth.
We especially see high adoption in the technology space where companies are spending more marketing dollars and constantly adopting new digital tools. Subscriptions (SaaS, PaaS, IaaS) make for a considerable part of a company’s business spend, which is why Subtra has created an intuitive subscription management platform with virtual card issuance capabilities. Our platform allows companies to purchase, manage and automate all their subscriptions in one place. You can assign each subscription to an employee via a virtual card that can be used to pay for one-time or recurring subscriptions. Subtra also provides in-depth analytics and subscription usage data that can help companies optimise their subscription spend by identifying orphaned or duplicate subscriptions.