What are virtual credit cards, and why are organizations turning to them?

Read Time: 5 Min
Virtual credit card use is growing as organizations increasingly turn to more secure methods to pay their suppliers.

By David Mussio, Commercial Credit Card Product Group Manager, Huntington Commercial Bank

Key takeaways

  1. Consider switching to electronic payment methods to avoid check fraud risks.
  2. Virtual credit cards offer companies heightened security controls over other payment methods.
  3. Suppliers benefit from faster payments, making it easier for organizations to move away from checks.
  4. Issuing virtual cards instead of corporate credit cards can reduce risk of employee or contractor misuse.

Escalating fraud and rising operational costs of traditional payment methods have intensified the need to adopt more seamless and secure payment processes. Among the alternate payment solutions available, virtual cards have emerged as a popular method for organizations to exercise tighter controls when paying invoices and issuing cards to employees or contractors. Businesses are increasingly turning to virtual cards for a variety of use cases beyond making one-time payments.

In this article, we’ll cover the rising threat of fraud, how virtual cards work, and how this payment method offers surprising benefits to both payers and payees.

Check fraud and alternate payment adoption

Checks have long been a staple in business transactions, but their vulnerability to fraud has become a significant concern. Recent findings show checks continue to be the payment method most impacted by fraud, and a staggering 65% of surveyed businesses experienced attempted or actual check fraud activity in 2023. Resolving these incidents of check fraud can be costly and time-consuming.

Though 75% of organizations report still relying on checks, this rise in fraud activity underscores the need to shift to safer payment methods. Switching to electronic payments, such as ACH transfers, wire transfers, virtual cards, and online payments, allows organizations to avoid the risks of checks being stolen, forged, or altered. Over the last few years, virtual cards have risen to the top of these alternate payment methods for business spending.

Virtual cards experienced a 13% increase year-over-year in 2023 and are expected to exceed both corporate and purchase card spending in 2024§. As mentioned previously, one of the appeals of virtual cards lies in their ability to provide more secure transactions, but there are other reasons companies are increasingly adopting them. Virtual cards have better spending controls and improved reconciliation compared with other electronic payments – and those benefits apply to both parties.

How do virtual cards work?

Virtual cards, unlike physical cards, are digitally generated credit card numbers designed for specific transactions. They offer the same convenience as regular credit cards for online or over-the-phone payments and can even be added to digital wallets to be used at payment terminals.

Businesses typically use virtual cards for one-time payments, such as paying an invoice from a supplier. Instead of providing a supplier with corporate credit card information to pay an invoice, organizations can issue a virtual card that is locked down to a single authorization for the exact dollar amount of the payment. Fraudsters find it difficult to use an intercepted virtual card with these types of controls in place.

Payer and payee benefits of virtual credit cards

Why payers use virtual cards:

  • Control over usage: Companies can control when and how much virtual cards are used for. They can even set restrictions on merchant categories or specific transaction types. These restrictions put the control of the payment back in the hands of the buyer, ensuring a supplier does not charge over the amount allowed or attempt to charge the same card at a later date when they are not authorized to do so.
  • Reduced fraud risk: Virtual cards are used for specific transactions, which means they have a limited lifespan and can be set with exact spending limits. Even if the card details are compromised, they can only be used according to predefined parameters, reducing the risk of fraud for the payer.
  • Financial management: Unlike direct debit options such as checks, ACH, or wire payments, virtual cards operate on a credit basis, which can improve an organization’s working capital situation. Relying on virtual cards can provide better cash flow management by delaying the actual cash outflow until the credit card billing cycle closes.
  • Lower costs: Virtual cards automate payment processing, thereby lowering the administrative burden and costs associated with handling, mailing, and reconciling traditional check payments. Also, unlike other payment types, virtual card providers typically pay companies for the usage of cards via rewards or rebates, incenting them to put more payments on card.

Why payees accept virtual cards:

  • Faster payments: It is common for companies to hold onto payments for 45-60 days or more after receiving an invoice, as checks and certain electronic payments can strain a company’s cash reserves. Virtual cards circumvent this issue by allowing payments without the immediate cash outlay. As a result, businesses typically pay upon receipt of an invoice, resulting in payees gaining access to funds faster.
  • Improved reconciliation: Virtual card payments carry detailed transaction information, such as the payer, amount, invoice number, and purpose of the payment, making it easier for suppliers to reconcile each payment with specific invoices. These details simplify the reconciliation process by reducing the effort required to match payments to invoices and increasing accuracy in financial reporting.
  • Reduced Data Sharing: Unlike other electronic payment methods such as ACH or wire transfers, suppliers do not have to give out their account information to receive virtual card payments from their customers. Most virtual cards are sent to a secure portal that a supplier can access to complete authorization of the transaction, eliminating the need to provide an account and routing number.

Virtual card uses beyond accounts payable

Organizations can issue virtual cards for uses beyond one-time payments, as the same controls used for corporate cards can be applied to virtual cards. For instance, virtual cards can be issued for a specific project, setting a limit that aligns with the projected expenses and restricting its use to relevant merchant categories. This precision minimizes the risk of overspending and protects against fraudulent attempts.

Another virtual card use case is for temporary needs, such as travel expenses, event-specific purchases, or short-term contractor engagements. For example, a virtual card can be issued to an employee or contractor to cover the costs of attending a marketing event. The active duration can be set to expire after the event concludes, preventing unauthorized charges.

It’s important to note that organizations still need to set limits and controls on virtual cards beyond an expiration data. While virtual cards can be more secure and flexible than typical corporate cards, their use should still fall under your organization’s commercial credit card expense policy. Adhering to the same stringent security measures as corporate cards can help prevent misuse of virtual cards.

Drive toward an efficient payables strategy

While some suppliers might have hesitated to accept alternative forms of payments in the past, the rising tide of check fraud signals a clear need to adopt more secure options. Virtual cards can offer benefits to both sides of the transaction with faster payments, enhanced security, and streamlined administrative processes. In 2023, just 3% of surveyed organizations reported actual or attempted payment fraud via virtual cards compared with 65% via checks.

Businesses should endeavor to protect themselves from fraud risks while processing invoices and paying their suppliers as efficiently as possible. Adopting alternative payment methods is one way to accomplish this. Learn more about payables management solutions that can scale to your needs and improve your organization’s working capital by reaching out to Huntington’s Treasury Management team.

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Related Content

Association for Financial Professionals. 2024. “2024 AFP Payments Fraud and Control Survey Report Key Highlights.” Accessed May 7, 2024.  

2024 AFP Payments Fraud and Control Survey Report.

§ Danner, Ben. 2023. “North America Commercial Card Market Review and Forecast, 2022-2027.” Javelin Strategy. December 4, 2023. Accessed May 7, 2024.  

2024 AFP Payments Fraud and Control Survey Report.

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