by Nori Gale
If asked, you’d probably struggle to remember the last time you wrote a personal check. In today’s world of Venmo, online banking, and Apple Pay, seeing someone pull out a checkbook at the grocery store or in a restaurant jump starts a trip back in time to when the world was slower and the internet was just an idea in a garage in what would one day become Silicon Valley.
Things are a little bit different in the B2B space as compared to the world of personal payments. Paper checks are still used with some regularity in B2B transactions. While such traditional methods of B2B payments tools have been under a steady stream of scrutiny as new ways of operating have come to the forefront, and paper checks have been questioned for their efficacy, physical checks still play a role in commercial payments.
Advocates of paper checks still have a voice
Players in the paper chase continue to advocate for their payments model, seemingly with blinders on. According to recent research published in a joint report produced by WEX and the Economist, checks still account for more than half of the US$25trn in annual US B2B payments, according to card payments operator MasterCard. U.S. businesses needlessly spend nearly $100 billion annually to issue and process eight billion paper checks (and their eight billion corresponding invoices) each year and many businesses continue to believe in the paper check as the tried and true, trustworthy option for them to pay their vendors and suppliers. This is an erroneous belief.
Virtual card solutions save your business money, are safer, and faster
Digital solutions for B2B payments provide a superior option to traditional payments methods for one simple fact: using a virtual cards solution saves your business money. Costs are a primary factor—if not the primary factor—driving more organizations to adopt the use of technologies like virtual card numbers (VCNs) to pay suppliers, especially in today’s increasingly global marketplace. And talk about “tried and true,” virtual cards have been in use for 20 years.
These 16-digit virtual credit card numbers are created to allow for one-time purchases and give managers the ability to have them available only at set amounts. The convenience, security and speed they provide is what is causing professionals in the B2B payments space to make the switch to digital payments.
Let’s take a look at five compelling reasons for businesses to switch to a virtual card solution for their payments program.
1. Virtual card solutions are cheaper than checks
The payment card industry has evolved largely because automated processes save time and money. Cards, plastic or otherwise, are part of the digital ecosystem that doesn’t rely on manual workflows that are prone to costly bottlenecks and errors. Consider how each VCN, as its own unique transaction identifier, enables automatic reconciliation.
Many major U.S. companies understand the benefit to the virtual card payments tool and have embraced virtual payments. General Motors, with major manufacturing operations globally, is at a tipping point where 85% of its bills are paid by virtual card in the US, and more than 90% of payments in Europe are paid by virtual card. GM treasurer Jim Davlin put it this way, virtual payments “give us better controls, visibility and predictability in cash management.”
2. Gain more control with a virtual card solution and experience less “runaway spending”
As Davlin mentions, payment administrators can set impactful controls with respect to expenses made by each one-time-use VCN. By setting specific limits on transaction timeframes, amounts, merchant categories, and suppliers your company will experience the benefits of wielding greater control over spending.
And when it comes to Pcards, when compared to a standard credit card, those kinds of controls can be a game-changer for CFOs and their staff when managing costs. Standard credit cards can be taken out of an employee’s pocket while on a business trip or at the office supply store and used at will. With the use of a VCN connected to a Pcard, they are by design less likely to be misused or abused: the automatic controls give employees guard rails within which to spend.
3. Built-in security with virtual cards decreases fraud risks
Fraud is always a concern—and always on the payments professional’s radar. Vendor, supplier, or procurement fraud was the most common form of fraud cited by 17% of the global executives surveyed in Kroll’s Economist Intelligence Unit study. And nearly half (49%) of payments professionals and CFOs feel highly or moderately vulnerable to this type of fraud. In 2019, for example, the aggregate losses stemming from identity fraud increased 15% to an estimated $16.9 billion. This type of fraud can include making improper or inappropriate payments, and can involve even more insidious types of fraud such as outright theft of sensitive bank account information or physical assets like cash or plastic credit cards. VCNs, by virtue of their highly configurable, single-use status, are inherently safer, and more effective at protecting your business from fraud.
4. Adopting a virtual card payments program reduces or eliminates overseas fees
A recent Saxo Payments survey reveals that a majority of businesses (79.4%) would be willing to switch their cross-border payments provider if they found a solution that cost less than their current system. There is concern about the high cost of cross-border payments because when paying suppliers in foreign currencies, there are likely to be FX mark-ups, FX fluctuations, and cross-currency transaction fees—those foreign exchange risks can be avoided or reduced by using VCNs, or engaging in these transactions over the payment rails.
When WEX’s Jay Dearborn, president of Corporate Payments, spoke with Oliver Renick as a recent guest on TD Ameritrade’s network they discussed how cross-border payments over bank rails provide even more cost savings and ease of use than other solutions currently do, providing yet another option in the digital payments space to save money and be more efficient in your business’s payments solution.
5. Benefits of virtual card solutions for Global Companies
As the global economy starts to slowly open up again after having been ravaged by COVID’s impacts, VCNs have become the go-to global payments solution for professionals in transaction-heavy industries like travel, insurance and media. The beauty of virtual card solutions is that they offer an alternative to managing payments within each local financial system because numbers can be issued in multiple currencies. Not only can companies pay suppliers and settle transactions in the same currency, but suppliers receive payments in their local currency in the same way they’re paid when accepting a credit card payment from any customer.
In this era of digital transformation, where personal payments have gone almost exclusively digital, B2B payments are making the switch and joining the digital payments world as well. They are making this change so their businesses can save money, experience greater spending controls and be more effective at preventing fraud.
Learn more about how WEX payment solutions can be tailored to your business, so you can operate easier and faster while creating lasting growth and success.
Wall Street Journal
Editorial note: This article was originally published on June 20, 2016, and has been updated for this publication.