The majority of businesses in the United States pay vendors and workers in one of three ways: They write checks, they send an electronic payment over the Automated Clearing House (ACH) network, or they present a payment card. A small fraction of transactions involving very large payments is made using U.S. wire transfer systems such as Fedwire and CHIPS. These methods have been the default for businesses of all sizes, in every industry, for decades. Until now.
In the last five years, a growing number of highly innovative, digital-forward firms have discovered a better way to pay. They are issuing virtual cards — 16-digit payment instruments that function like physical payment cards but with dynamic, customizable controls that can be directly linked to better business results. What was previously regarded as a commodity function has become a way for agile businesses to pull ahead. A key advance has been the development of modern card issuing platforms. These differ significantly from first-generation virtual card solutions in that they empower developers to quickly craft bespoke payment solutions by accessing modern payment infrastructure via open APIs. By building virtual card payment solutions on a modern card issuing platform, companies realize five primary benefits over ACH and checks.
1. Security and control
Unlike ACH and check payments, which are plagued by fraud, virtual cards provide several layers of advanced security. Dynamic controls tightly restrict where, when, and how a card is used. As with other payment instruments created on a modern card issuing platform, the use of virtual cards can be limited by merchant, merchant category code, amount, country, frequency of use, start/end dates or times, and many other variables. Tokens can be substituted for primary account numbers in order to minimize opportunities for misuse. Issuing single-use virtual cards provides even further protection as cards are revoked once transactions are completed.
2. Freedom to innovate
Virtual cards can be implemented via open APIs that give developers access to modern card issuing infrastructure. Designed to reflect unique business needs and deployed as digital ones and zeros, virtual cards are endlessly customizable. Organizations who pay with virtual cards aren’t constrained by the requirements of an ACH or payment card processor. As their business changes, they can reconfigure their payment processes to reflect new realities and new relationships.
3. Better operational efficiencies
Virtual cards are the fastest form of payment available today. They can be instantly issued and presented for payment like any other payment card. Repeat payments can simply be pushed to a cardholder with no delays. In comparison, ACH payments are processed in batches with settlement taking two to three days. Checks, which remain the most common form of payment, can take five days to clear. With virtual cards, goods are released and delivered faster, enabling new business models like on-demand delivery services that can turn your accounts payable from a cost center to a revenue center. In addition, virtual cards can be set to operate in a Just-in-Time (JIT) Funding mode. With JIT Funding each card maintains a zero-dollar balance. Transactions are approved by organizations in real time upon receipt of an authorization request and according to business rules.
4. Insight and automation
Virtual cards provide rich transaction data, giving organizations deep visibility into their spending and enabling data-driven decisions that can streamline and automate different stages of the payment process. For example, the dozens of descriptors associated with each payment can be processed by machine learning engines to better understand how and when suppliers are paid in order to optimize cash management or negotiate better terms. Secondarily, virtual cards enable automation by allowing multiple suppliers to be paid in one transaction. They also permit additional metadata to be injected into the payment flow to assist in reconciliation.
5. Real-time notifications
Both virtual cards and physical cards built on a modern card issuing platform can be configured to convey real-time notifications as a transaction is processed. Organizations, in turn, can leverage these notifications to provide real-time, meaningful messages in support of their businesses. For example, when a delivery person uses virtual cards to purchase orders at restaurants, the notification that orders have been fulfilled can trigger messages to the customers who are waiting for their next meal.