Virtual Cards Gaining Ground on ACH in B2B Payments

The accelerated digitization caused by shutdowns and operational restrictions during the pandemic inspired a series of financial experiments, many of which have shown that they have proven staying power.

For example, 55% of chief financial officers (CFOs) now say ePayables with virtual cards are used more frequently than they were before the pandemic because of digital innovation, according to the “B2B Digital Payments Tracker,” a PYMNTS and American Express collaboration.

Get the report: B2B Digital Payments Tracker

While automated clearing house (ACH) transfer remains the most sought-after electronic payment processing tool, 28% of company leaders also plan to invest in virtual cards in the near future.

Transparency and Control

Virtual cards make payment more efficient by eliminating manual processes like data entry and by streamlining reconciliation, RJ Ancona, vice president and general manager, B2B, global merchant and network services at American Express, told PYMNTS in a January interview.

Read more: Virtual Cards Streamline B2B Commerce During Uncertain Times

For suppliers, virtual cards increase communication and alignment on invoices and billing. For buyers, they provide an added layer of security and control, as single-use virtual cards ensure that only particular charges or invoices are authorized. They also offer buyers rewards and cash-back rebates.

“You won’t get those features on things like ACH or debit cards, so we’re seeing more and more companies find a win-win situation between the buyer and supplier associated with that,” Ancona said.

Before the pandemic, cash, checks and physical debit or credit cards were the most common payment methods. Now, the use of manual methods is trending down, with 78% of CFOs using cash on delivery less frequently and 40% reducing their use of paper checks.

Better B2B Payments

It’s difficult to ignore the growing momentum of virtual cards in the business-to-business (B2B) space. Companies can incorporate them to improve cash flow, enhance security and enable accounts payable (AP) automation more seamlessly than when they rely on clunky, antiquated methods such as paper checks. Enabling virtual card acceptance through accounts receivable (AR) automation also can increase efficiency and help businesses capture large spending opportunities.

One feature that sets virtual cards apart from other electronic payment methods is their ability to offer integrated security features. Unlike traditional debit or credit cards, digital cards rely on tokenization to process the cardholder’s transactions, creating a unique and randomly generated single-use code to process each payment.

The risk of fraudsters acquiring the data used to conduct a virtual card payment — and being able to leverage these details if they do — is astronomically low compared to physical card transactions, and its digital footprint makes suspicious activities easier to track. This is particularly meaningful for businesses because high traffic often can result in difficulties detecting fraudulent behaviors.

Virtual cards have a promising future as a secure, convenient B2B payment method, even when compared to the current frontrunner in the electronic payments space: debit-based ACH.

B2B companies that have not done so already should consider incorporating virtual cards into their daily operations to decrease fraud, improve vendor relationships and provide more insight into companywide spending.