Commercial cards have been a key banking product for years. Their usage is well-established among issuing banks and their corporate customers. In recent years we have seen growth across all commercial card types, largely driven by the increasing automation of back-office payables capabilities as corporate and business customers shift away from legacy paper-driven processes.
Over the years the market has expanded into areas like T&E Cards, central travel accounts and executive cards, but more recently the use of e-payables and virtual cards has skyrocketed with some businesses doubling or tripling their virtual card spend.
Virtual cards remain a relatively new category within the commercial cards space, accounting for only a small proportion of most issuers’ overall commercial card portfolios. But they have grown rapidly as organisations look to adopt them to improve business processes and exert tighter control over payments.
One factor driving growth is the consumerisation of commercial banking. Many people today are using less cash in their daily lives, instead opting for more modern payment methods such as digital wallets within mobile devices. The concept of using virtual cards is therefore familiar to most employees, and something they quickly adapt to in the work environment. Indeed, people are increasingly demanding the same payment experiences in their business life that they enjoy in their personal lives as consumers.
Virtual cards appeal to employees by reducing friction within the payments process but can also deliver direct benefits to a business. One such benefit is the reduced credit exposure faced by an organisation through limiting the number of plastic cards issued to employees. Businesses can instead move to a request based process with a virtual card issued to employees when spend is required. With the addition of card controls a business can further restrict spend to only the approved criteria within the request.
A process based on pre-spend request ensures that a business has visibility of spend before it happens therefore significantly reducing erroneous spend and reducing the back-end work required to manage expenses. Further to this, integration with an Expense Management System (EMS) ensures no double-touching of an expense by an employee as correct categorisation of spend can happen up front.
Long-term growth in virtual cards will also depend on an expansion in the kinds of business use cases available. If virtual card usage is to continue growing at pace in the business arena it is important that providers promote them outside of the traditional travel use-case. Educating businesses and driving usage for a wider range of spend needs, currently only serviced through traditional plastic cards.
This will deliver further opportunities for fintechs to begin to make an impact and change the thinking and acceptance of virtual cards within the business market. By promoting virtual card use among smaller, growing, businesses who are looking to manage cash flow and retain tighter spend controls fintechs can promote best practice expense management processes to a market thirsty for innovation.
The long-term prospects for virtual cards look more than inviting – as virtual cards and e-payables have reportedly exploded in popularity, even relative to the wider market. It seems reasonable to expect that the consumer who never wants to carry cash today will most likely also never want to carry debit or credit cards with them in the years to come.
In line with this, the actual term virtual card may be short-lived even if the concept is much longer lasting. With the use of the word ‘card’ being misleading in a digital age, branding may change to virtual or online accounts and will effectively involve access to payments throughout a user’s digital wallet.
Ultimately, however, whatever name is chosen the benefits of virtual cards both for business users and the businesses they serve, are too significant to be ignored. Businesses gain through enhanced control of the whole expense management process, increased payments security and reduced opportunity for fraud while business users have a much more intuitive and convenient way of managing their business expenses. Even if the name ‘virtual card’ is not long-lasting, the concept behind it is here to stay.
