Future of Accounting

The Scoop on Virtual Credit Cards

April 7, 2022


Estimated Reading Time: 3 minutes

The use of virtual credit cards (VCC) represents one of the most significant recent trends in finance, providing businesses and individuals with a quick and secure method of making payments.  

Because of their growing popularity, it is helpful to know how they compare to the multitude of other methods available.

What is a virtual credit card?

Put simply, virtual credit cards (VCCs) are temporary credit card numbers that can be used when shopping online. They can be single-use or set up to have a dollar limit. 

By masking your physical card number, VCCs can protect your business from fraudulent activity — providing peace of mind if one of your supplier’s systems has been compromised.  They are also able to integrate with accounting software, and can even generate revenue through cash rebate programs

How do they compare to traditional paper checks?

Although digitization is on the rise, paper checks remain widely used. According to PYMNTS, they make up around 40% of B2B payments in the market and are responsible for approximately US$21 trillion moving through the American economy each year.

Despite their prevalence, they are an inefficient method for modern businesses to use. Processing a single check can cost between US$4 to US$20. They are also extremely susceptible to fraud. 

The 2021 AFP Payments and Fraud Survey found that 66% of organizations using paper checks experienced attempted or actual payment fraud. That’s over substantially higher than methods like ACH, which was a mere 19%. 

They also take longer to process, and are more vulnerable to risks like getting lost. From a payables point of view, this increases the chance of late payments, fines, and fees, and potentially damaged relationships with vendors.

What about ACH?

As an electronic method of remittance, ACH is more efficient, and, as noted in the above fraud survey, substantially safer than using paper checks. However, the process still has numerous drawbacks when compared to VCCs.

To use ACH, you must gather and store vendor information, and are responsible for the security of the data. It’s a time-intensive process and must be completed for every vendor used, and any new ones your company adopts.

Though much safer than paper checks, ACH still leaves companies vulnerable when compared to VCC. According to AFP’s 2020 report, only 3% of organizations using virtual credit cards report attempted or actual fraud. 

Are VCCs different from digital wallets?

Also known as an e-wallet, digital wallets are software-based systems that retain payment information to use for online transactions. Credit or debit card information is stored with their exact numbers. When a purchase is made, a temporary number is created and used to pay the vendor, in order to protect account information.  Some of the most popular examples are Apple Pay, PayPal, Venmo, and Google Pay. 

While they function in a somewhat similar fashion as VCC, digital wallets are slightly more restrictive, in that they can only be used with participating vendors. In contrast, a VCC can be used to pay any business that accepts credit cards.

Pre-paid Cards

Unlike a VCC, which only exists digitally, a pre-paid card is a physical object that has a set amount of money already loaded onto it. It also is not linked to a credit card or an account with a financial institution. 

There are two types of pre-paid cards: open-loop, which can be used anywhere that brand is accepted, and closed-loop, which can only be used with a specific company. In 2019, pre-paid cards were used by 21% of businesses, with their use expected to grow by 2% through 2023. 

That said, prepaid cards are not as widely accepted as other forms of payment. They also may be subject to withdrawal, top-up, or payment limits.

Credit Cards

While credit cards are perhaps the method with the greatest global acceptance, they do present security risks to companies using them for payments. When a physical card is used, it exposes the user’s personal information. 

In contrast, VCCs do not have any hard information that could be stolen by hackers. The ability to set spending limits also protects businesses from internal fraud or misuse of company funds.

When compared to other popular methods of payment, VCCs provide a greater amount of flexibility, security, and efficiency than more traditional methods of payment. 

To learn more about how to increase financial security for your business, read Stop Fraud Now: How to Protect Your Company with AP Automation, a Beanworks whitepaper

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