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Automated Bank Services: Improve Payment Efficiency and Security with Virtual Cards

Automated Bank Services: Improve Payment Efficiency and Security with Virtual Cards

Virtual cards (vCards) are one of the most exciting recent banking technology advancements. Virtual cards offer businesses a new way to make payments and earn benefits. Here’s an overview of how virtual cards work, their benefits and how your business can become more efficient by using them.

How virtual cards work

A virtual card has a limit, number and expiration date, but it does not physically exist. Most virtual cards are used in online transactions or processed through merchant terminals. Since the card does not physically exist, this reduces a business’ exposure to possible fraud.

Virtual cards can be produced in two ways:

  1. Through a purchasing card (p-card) system. Some p-card providers offer this through their expense management systems. Many businesses use this type of vCard to sign up for recurring payments and make online purchases that are typically small (less than $5,000). 
  2. Through an automated accounts payable (AP) system. Unlike p-card software, automated AP systems produce individual, unique cards for each payment. They have limits set to cover only the transaction amount (typically between $5,000 and $1 million), and then they expire just days later – significantly reducing fraud risk.

What to look for in a vCard provider

It’s important to understand the benefits with various AP systems because they are not all created equal. They offer significantly different terms, rebates and payment origination methods. To determine which method will fit your business best, here are some things to look for when choosing a provider:

Revenue share

Revenue share is usually at the top of a business’s considerations list when it comes to selecting an AP system for vCard transactions. All virtual card transactions are processed through either the Visa, Mastercard or Amex networks. The transactions are subject to interchange fees, which is the cost for using their system.

Interchange fees may include a flat rate plus a percentage of the transaction, somewhere between 1.5% and 2.0%. The fee is taken when the card is processed and is shared between the merchant processor, the card network and the originating system provider. Most automated AP system providers will share this revenue with the originator, but the amount is always dependent on certain terms. It’s important to compare providers to get the most revenue share for your business.

Payment float

Payment float is a contract term that mostly affects the amount of rebate a business will receive from a provider. Some providers take possession of a customer’s funds before creating payments, and these systems typically do not offer much float between when a payment file is submitted and when the provider takes possession of a business’s compensating funds. In some cases, providers may offer a higher rebate if a business is willing to reduce their payment float. In other cases, a provider may even offer the same rebate and longer periods of float without any concessions from the business.

Why these benefits are important to your business

Revenue shares are important to your business because of the opportunity to earn additional profit. Payment float is important because it is a vital part of a successful vCard system. As I mentioned, all vCard transactions are subject to fees. A business may need to incentivize a vendor to get them to change from receiving a check or ACH. The easiest way to achieve this is by agreeing to pay the vendor more quickly. With more payment float, a business can pay an outstanding invoice sooner but maintain the same payment schedule out of their own account.

Businesses with more payment float can negotiate vCard payments with vendors by offering them significantly better terms. This may mean reducing the payment cycle for certain goods from 60 to 30 days or from 40 to 20 days depending on the amount of float a business is receiving from the vCard provider. A business with more payment float has more options when it comes to negotiating with vendors, which increases the chances the vendor will accept vCards for payments. This will then increase the amount of rebate the business receives from their provider.

The bottom line

In today’s economic climate, businesses must evolve by using technology that can help contribute to their overall success. Join others who are already streamlining their operations, reducing costs and improving security. Interested in making the switch? Contact me below or reach out to another member of the Bankers Trust Treasury Management team.   

Dan Perez, CTP

Dan Perez, CTP

VP, Senior Commercial Banking Product Manager

Dan Perez is VP, Senior Commercial Banking Product Manager at Bankers Trust where he leads the commercial product team to develop a strategic product vision for the Treasury Management division. Dan has more than 12 years of experience in the banking industry and was recognized in the Corridor Business Journal’s Forty Under 40 class of 2021. He earned his bachelor’s degree and is currently working toward an MBA at the University of Iowa. Dan also holds his Certified Treasury Professional designation.

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