Cash is becoming obsolete and being replaced with virtual currencies
In a December 2021 New York Times article Peter Coy discusses the demise of cash. Coy cites a Federal Reserve study that illustrates that this trend has been accelerated by the COVID pandemic. Those preferring to pay with cash in the US fell to 18 percent in 2020, down from 27 percent in 2016. The study also found that Americans ages 25 to 34 are less than half as likely to use cash as those in the 65+ age bracket. With cash becoming obsolete, virtual currency and the use of virtual cards for your business payments has become increasingly necessary.
Ramp up of virtual cards being used for digital payments
During this era of social distancing and working from home, the line between real and virtual has become blurred. With that shift to a more virtual existence has come an increase in online shopping. Forbes Magazine reported a sharp rise in online spending activity in May of 2020, growing 93% year over year from 2019. And 7 out of 10 people surveyed believe that this increased use of digital payments is going to be permanent.
Explore further with our "What is a Virtual Card?" Infographic.
B2B payments are no exception as companies search for ways to streamline accounting processes in a remote workplace environment - and that’s where virtual credit cards come into play. As the name suggests, virtual cards don’t exist in a plastic format. Simply put, a virtual card is an electronic card number. It’s typically used only once and, in addition to being touchless, has two major benefits: it streamlines reconciliation for both buyers and suppliers and it also makes the transaction more secure.
Back in March of 2019, it was predicted that virtual cards would experience a 90% increase in the next several years and surpass $1 trillion by the end of 2022. It’s likely that number will be greater and there’s a distinct possibility we will reach that $1 trillion mark earlier in 2022 due to fallout from COVID-19.
At WEX, virtual cards are inherent to what we do: we’ve been delivering virtual card solutions for 20 years.
How does a virtual card work?
With the explosion of online shopping, the use of digital payments has increased dramatically. At the same time, mobile payment apps have become more popular, and banks have been adapting to the digital payment revolution as well. They’ve made it as easy to move money on a smartphone as it would be walking into a brick and mortar branch. Virtual cards work behind the scenes as a digital payment method, providing a secure payment option for you while protecting your data from being compromised.
Virtual cards increase payments security
Since the move home for the majority of the world’s workforce, there has been a significant spike in cybercrime. The FBI has seen cybercrime reports in the US increase fourfold during the COVID-19 outbreak, and the U.N. reported that globally, "cybercrime is also on the rise, with a 600 percent increase in malicious emails during the current crisis."
Virtual cards are used only once and have precise controls attached to them, like dates of use, types of use, and dollar amount available. Therefore, the use of a virtual card in business transactions will keep cybercriminals out of your wallet and help prevent fraudulent activity on your accounts. As cybercrime rises in the United States and across the world, cybersecurity must in turn become an immediate priority for companies and businesses who regularly rely on a safe virtual exchange of funds.
Virtual cards offer an ideal way to keep your business accounts secure.
Virtual cards simplify supplier payments
Transparency in spending is critical to controlling costs, negotiating discounts, and optimizing cash flow for businesses. In a post-COVID economy, this has become even more urgent. With virtual cards, payment data is attached to the credit card number transfer, so both buyer and supplier can pinpoint a transaction to the exact date, amount, purchaser, and item. This allows accounting departments to automate the reconciliation of expenses and free up time to analyze the valuable data being gathered. Identifying trends and anomalies enables companies to better strategize around expenditures, expertly negotiate contracts with high-frequency vendors, and eliminate wasteful spending.
Virtual cards save money in accounts payable operations
Because virtual cards streamline payment processing, companies who adopt virtual payments reduce time spent on manual processes, allowing their employees to focus their efforts on strategy and analysis.
Companies that adopt the use of virtual cards will experience a boost in both productivity and savings. With a virtual card, your suppliers can receive your payment in real-time. This removes the fear of checks being stolen or lost in the mail. It also delivers payments to vendors in a more efficient and timely manner and reduces any human error associated with the pay-by-check process. Also, many virtual payments programs come with a rebate, turning a cost center into a profit center.
What are the different types of virtual credit cards?
Through single-use virtual cards and lodge cards, businesses can take advantage of the highest level of security, control, and efficiency when processing payments.
Single-use virtual card
A single-use virtual card is a card with a number that’s only valid once. After your payment has been processed, the virtual card number becomes invalid. The controls associated with these cards can be as tight as you want them to be. You can control the expiration date, what merchants are allowed to be used with the card, and the amount of cash available for use. Single-use virtual cards can be used with one specific amount only, or for multiple transactions that add up to that specified sum. For example, a virtual card can be used for $200 exactly, or it can be used for five $40 transactions, depending on how the card is set up. These cards also process payments faster than a traditional credit card, which allows reconciliation to happen more quickly.
A lodge card has an established credit limit for goods, services, or invoice payments and is provided to a vendor with that credit limit already established. Transactions from this type of card can never exceed their authorized credit limits, but their identifying numbers can be used multiple times. With lodge cards, it’s possible to set controls for expiration dates and other factors. Because lodge cards reuse the same virtual number repeatedly in different transactions, you will want to use them with trusted vendors only, and as sparingly as possible.
How do I choose a virtual card provider?
As your business is shopping for virtual cards, look for a provider that offers you flexibility and security. The best virtual card platforms allow you to configure credit, implement spending controls, and attach authorization to each transaction. Payments are critical to your business operations, so choose a company that is stable and can scale as you grow. The very best providers immerse themselves in understanding your operations and objectives and maintain a consultative approach to help you optimize the program for the life of the solution.
Click here to learn more about how WEX payment solutions can be tailored to your business, for optimized operations which create lasting growth and success.
This video provides a great overview of what virtual payments are and why you'd want to use them:
Editorial note: This article was originally published on November 16, 2019, and has been updated for this publication.
New York Times