The Future of Vendor Payments: Will Virtual Cards Become the Norm?

As digital transformation continues to reshape industries, the world of accounts payable (AP) is no exception. Businesses are increasingly adopting automation solutions to streamline and optimize their back-office processes, and one such innovation that’s gaining traction in vendor payments is the use of virtual cards.

These digital payment tools promise efficiency, security, and cost savings, aligning well with the evolving needs of businesses.

But will virtual cards become the norm in AP departments?

Let’s dive into the world of virtual cards, their role in AP automation, and whether we can expect widespread adoption in the near future.

What Is a Virtual Card?

A virtual card is a unique, digitally generated card number used for a single transaction or a limited number of transactions. Unlike a physical credit or debit card, a virtual card exists only in digital form and can be created instantly through an issuing platform.When used for business-to-business (B2B) payments, it allows businesses to pay vendors securely without exposing their credit card account numbers.

Virtual cards work much like traditional cards but with added layers of security and control. Here’s how the process works: A business’s AP team generates a virtual card through a financial institution, assigns it to a specific vendor, sets a spending limit, and provides the card details to the vendor. The vendor then processes the payment as they would with any credit card. Once the transaction is complete, the card number expires.

In terms of adoption, virtual cards have grown significantly in recent years and according to Juniper Research, virtual cards will be the fastest-growing B2B payment method by transaction value globally by 2028. The company has forecasted that virtual card transactions will grow from $3 trillion in 2024 to $11 trillion in 2028.

The Advantages of Using Virtual Cards in Accounts Payable

Virtual cards come with a variety of great benefits, so businesses looking to enhance their AP processes will find a lot of key advantages, including:

1. Increased Security. Because virtual cards are typically valid for only one transaction or for a short time period, they are noted to be a highly secure form of payment that reduces the risk of fraud. Additionally, virtual cards will not expose a business’s sensitive bank account details or credit card information, and this effectively limits the potential for exposure to cyber threats.
2. Improved Control Over Payments. Virtual cards allow businesses to set specific spending limits, control where the card can be used, who can use the card, and even dictate the expiration time. These controls can help businesses manage their cash flow and avoid unauthorized or fraudulent transactions both internally and externally.
3. Faster Payments. Since virtual cards can be generated instantly and sent digitally to vendors, they enable faster payment processing. This speed can be particularly beneficial when a business is looking to build strong relationships with vendors by ensuring timely payments.
4. Simplified Reconciliation. Each virtual card is tied to a specific transaction or series of transactions, making payment reconciliation more straightforward for the AP team. This reduces administrative work, as every payment is traceable, and data can be easily imported into accounting systems.
5. Cah Rebate Potential. Many virtual card providers offer cash-back rebates on transactions, so any businesses making large payments to vendors can gain significant cost savings over time.
6. Fewer Paper Checks. AP departments that are heavily reliant on checks face high costs related to printing, mailing, and processing; they are also more exposed to more risk in relation to security threats and fraud. However, by switching to virtual cards, businesses can drastically reduce their use of paper checks, saving time and money.

The Disadvantages of Using Virtual Cards in Accounts Payable

Despite all the benefits, virtual cards are not without a few drawbacks. For some businesses, these limitations may cause hesitation when considering virtual card adoption.

1. Trouble with Vendor Acceptance. One of the most common challenges with virtual cards is that not all vendors are equipped to accept them. While credit card networks are widely accepted, some vendors, especially small businesses, may not have the infrastructure to process virtual card payments. This can slow adoption and limit the use of virtual cards in certain industries.
2. Transaction Fees. Vendors accepting virtual cards typically incur transaction fees, which can range from 2% to 3% per transaction. For some businesses, particularly those with thin margins, these fees can be a deterrent. As a result, vendors may charge higher prices to offset transaction costs or refuse to accept virtual cards altogether.
3. Limited Usability for Recurring Payments. Since virtual cards are typically designed for one-time or single-use payments, they are less suited for recurring payments, such as monthly subscriptions or regular vendor services. Businesses that rely on frequent, consistent payments to the same vendors may find virtual cards cumbersome to manage in these cases.
4. Complex Integration. For businesses with existing ERP or financial systems, integrating virtual cards into the AP process can be a little more complex. The need for seamless data flow between systems means that implementing virtual cards may require additional software, integrations, or development work, which can lead to higher upfront costs.

Why Some AP Departments Hesitate to Adopt Automation and Virtual Cards

The push toward AP automation—including the use of virtual cards—comes with a number of great benefits, but not all businesses are quick to embrace it. Here are some of the factors that contribute to the hesitation in adopting AP automation solutions:

Resistance to Change

AP departments are often comfortable with their existing (and often manual) processes. Implementing a new system requires training, changes in workflow, and an adjustment period, which can be seen as disruptive when businesses have limited IT resources.

Reality: While transitioning to AP automation will require initial training and workflow adjustments, the long-term benefits far outweigh the temporary disruptions. AP automation solutions are designed to be user-friendly and scalable. On top of that, a reputable AP automation provider will offer robust support and onboarding to help make the transition smooth. 

Cost Concerns

While automation offers long-term savings, the initial cost of purchasing, implementing, and maintaining an AP automation solution can be higher than anticipated depending on the required integrations. As a result, smaller businesses may be hesitant to invest in technology they believe may take years to provide a return on investment.

Reality: The return on investment (ROI) of an AP automation investment is often realized much faster than anticipated, especially for smaller businesses. It’s also worth noting that many solutions offer scalable pricing models to ensure a business only pays for what’s needed as business grows. On top of these benefits, cash-back rebates and faster payment cycles help contribute to quicker ROI.  

Complex Vendor Networks

Businesses with a broad and diverse vendor base may struggle to get all their vendors on board with virtual cards or automated payments. Convincing vendors to accept new payment methods can be challenging, especially if the vendors are accustomed to traditional methods like paper checks.

Reality: Faster payments, fewer errors, and greater transparency are all strong incentives for adopting new payment methods like virtual cards. Many automation providers also allow vendors to choose traditional payment methods such as checks or ACH payments first and then gradually transition to virtual payments. 

Data Security Fears

While automation can enhance security, some businesses fear that moving to a digital solution increases their vulnerability to cyberattacks. Data breaches, hacking incidents, and the perception of increased exposure may hold businesses back from automating AP processes.

Reality: Automation platforms use encryption, tokenization, and advanced fraud detection tools to protect sensitive payment data. Additionally, automation solutions undergo rigorous compliance with industry security standards, ensuring that a business’s data is safeguarded. 

Limited IT Expertise

Implementing an AP automation solution, especially one that integrates virtual cards, requires a degree of technical expertise. Businesses without an internal IT team or the budget to hire outside consultants may find the prospect of automation a little too daunting.

Reality: Modern AP automation solutions are designed for ease of use and minimal IT involvement through intuitive, cloud-based platforms with built-in integrations. Dedicated support teams and comprehensive onboarding to guide businesses through setup and rollout also ensure smooth transitions.

The Future of Virtual Card Payments: Widespread Adoption on the Horizon?

Despite the challenges involved with virtual card adoption, the future of vendor payments is undoubtedly trending toward automation. As businesses continue to embrace digital transformation, the efficiency, security, and cost benefits of virtual cards will likely drive greater adoption in AP departments.

Many industry experts predict that over the next decade, we will see a significant shift toward automated AP processes. Then, as more vendors become comfortable with accepting virtual cards and businesses overcome the hurdles of integration and change management, virtual cards are expected to become a standard tool in AP departments.

Furthermore, as technology evolves, we can expect virtual card solutions to become more versatile, addressing current limitations like recurring payments and vendor resistance. Over time, artificial intelligence and machine learning will likely enhance AP automation platforms, making them more user-friendly and accessible even for small to mid-sized businesses.

The Case for Accounts Payable Automation

The future of vendor payments is clear: automation is not just a trend but an forthcoming evolution that will transform the world of payments. Virtual cards, with their ability to improve security, control, and efficiency, are at the forefront of this transformation.

For businesses looking to stay competitive, now is the time to explore AP automation solutions, and CloudX’s APSmart and PAYSmart can help unlock significant savings and foster stronger vendor relationships.

Contact CloudX today for your no-obligation consultation.