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B2B Payments & Virtual Cards: Bridging Data & Speed

Commercial virtual card use has boomed in recent years, from supplier payments and software subscription to insurance and travel expenses. The worldwide value of these transactions are expected to hit $7 trillion in 5 years, a gain of $5 trillion from 2021, according to Visa. However, this phenomenal growth expands beyond commercial use cases. Virtual cards usage is also increasing among consumers, whether it’s to solve traditional pain points around cross-border payments, to enable instant and smooth access to credit, or buy now, pay later (BNPL) solutions.

In simple terms, these digital cards can be used to break down barriers across borders both in the commercial and consumer card space. Which in turn makes payment moves that would have been improbable 20 years ago relatively straightforward in today’s world. For smart lending, the instant issuance of virtual credit cards enables lenders and merchants to offer end-user payments within the app they are using. This process is a lot more convenient and seamless compared to the traditional credit application process. Payment companies are also partnering up to provide processing and payment services to Middle East and North Africa (MENA)-based FinTechs, with virtual cards offering massive opportunities to fuel greater financial inclusion in developing regions. In instances where there is an emergency or an unfortunate disaster, virtual cards can be used by governments to seamlessly send funds to people that would otherwise be unable to seamlessly access money.

With business to business processes, payment issues go hand in hand with a lack of data. They are inextricably linked, particularly when it comes to large-ticket, cross-border transactions. These types of payments are complicated and there are always specific details associated with the transactions that both parties need to reconcile. It is the reconciliation point that is rife with problems. The back-and-forth exchange of payments data has been mired in an antiquarian process that is decidedly 20th-century in terms of technology: paper invoices, faxes, phone calls and paper checks. Along the way, data gets lost or is incomplete, creating negative ripple effects up and down supply chains rooted in key verticals such as manufacturing or logistics. The entire payments ecosystem is rife with inefficiencies, and there needs to be a push towards digital transformation to create more seamless experiences.

Fraud and B2B payment process

Digital cards have long optimized the expense management of organizations and since the pandemic have reduced the need for employees to sit in the office to process physical checks. Now companies have the option to streamline the entire payments process, thanks to the automation that virtual cards bring. They are not only more cost-effective than processing checks, but also more transparent for ensuring partners and suppliers get paid on time. The shift to virtual cards also enables employers to control spending, either by assigning a multi-use virtual card to an employee for various payments or perhaps a more stringent single-use card to ensure transactions over a certain value are closely monitored. It can also be a way  to limit payments to a particular supplier or merchant.

Approval features help to mitigate fraud in business to business payments. Virtual cards can automatically categorize transactions and provide spending data that can help finance teams make better spending decisions. They can also be a payment token for a company to assign a set of features and controls tailored to a user experience. Traditional physical card products lack this functionality and specificity.

 

What legacy banks can do

Traditional banks can leverage current momentum to drive virtual card adoption. Beyond traditional corporate clients, there is an increasing number of merchants demanding digital-first payment options. The level of consumer expectation regarding digital payments has grown exponentially over the years, influencing their corporate finance teams. More than half of consumer finance companies and utilities have the capability to process all monthly bill payments digitally, however only 12% of them do so, demonstrating there is certainly room for process improvement. Consumers now expect most experiences to be digital, irrespective of whether it is coming from a merchant, a fintech, or a bank. They all need to offer the same fast and seamless payments experiences. These expectations will continue to play an important role in driving the adoption and integration of virtual cards into many payments systems moving forward.

 

AUTHOR

Angela Murphy, Ph.D.

Vice President, Business Development, Photon Commerce

Dr. Angela Murphy has experience in artificial intelligence, financial technology, and the global payments industry, building on her skills as a storyteller and rhetorician. She engages at the intersection of strategy and insight to drive results for her clients. In her current role at Photon Commerce, she helps run a team that uses artificial intelligence and machine learning to solve complex problems in the payments industry. Dr. Murphy received her Ph.D. from the University of Kansas, and currently resides in Kansas City with her husband, Brock, and German Shepherd rescue, Roscoe.