The Impact of Virtual Cards on the B2B Market

July 2021

Fintech & Payments

Juniper Research

Analyst House

Virtual cards are a form of payment tool, and function in principle in the same way as a user’s credit or debit card. What makes virtual cards distinct from a card issued as standard is the inherent level of integrated security. As these card numbers are randomly generated and only exist in a transitory fashion, the risk of fraudsters acquiring the user’s card details are mitigated. Therefore, virtual cards are first and foremost a form of payment detail protection.

Whilst the process of generating the information on a virtual card is a form of tokenisation, virtual cards are more independent than many comparable tokenisation schemes. Such schemes are tied to particular payment networks and are generally interoperable. However, encrypted virtual cards are a way for card companies to provide tokenisation-type security without having to use a particular payment network’s tokens. Unlike direct balance transfers, this still requires the use of a payment card network, so the benefits of steering traffic either towards or away from a particular network, especially one that is part of EMVCo (Europay, Mastercard & Visa Consortium), will be minimal. 

The majority of benefits for virtual cards focus on providing B2B payment options and capabilities, with the intended end of simplifying A/P processes. They are generally online only, as business procurement is typically done online. Whilst this could be a barrier for the consumer space, it is not such a problem in a B2B context where CP (Card Present) spending, such as in-store payments and cash withdrawals, is seldom made. 

Virtual card provision is most frequently tied to a full A/P software suite, which incorporates virtual cards as one of the payment methods. It is likely, given the ability to receive rebates from virtual cards, that they will be promoted as a primary method of dealing with suppliers as well.

On the other hand, the B2C (Business to Consumer) applications of virtual cards are fewer than the B2B’s. This is broadly because the inabilities to make cash withdrawals or offline purchases is felt more strongly amongst consumers than for businesses. That said, the security benefits of virtual cards are still attractive to consumers, and several virtual card vendors target the B2C space as part of their strategy. 

These providers attempt to allow consumers to use virtual cards in a variety of contexts through an independent service. Some lean on that independence and make a privacy play of their positioning, but others focus on pure convenience; emphasising financial management benefits.

Virtual cards’ benefits are promoted by several banks as a reason to use their virtual card service, but they are far from a universal feature. Indeed, while some banks are adding them to their features list, particularly challenger banks, more established firms are withdrawing the service, particularly in the US. The most notable withdrawals include PayPal and Bank of America. The latter has given reasons for its withdrawal from the service, citing the prevalence of digital wallets as one reason to shut down the service. This indicates that the company sees virtual cards as analogous to the kind of card-on-file tokenisation provided by most digital wallet providers; focusing on the security benefits rather than any end user utility as such. That said, many major banks do still offer virtual cards to consumers, and the biggest barrier affecting consumer adoption is the lack of knowledge about virtual cards and their benefits amongst the public.