Cards, as we know them today were invented in the 1960s. Since then, we have seen waves of innovation in the space, from the launch of loyalty programs to contactless payments; being able to print a photo of your choice onto your card to mobile and wallet pay. Incredibly popular with consumers, physical cards have brought ease, convenience and security to the consumer world. Then, in the 1990s, the digital revolution that swept the world with the birth of the internet also struck the card market, and virtual cards were born. But it hasn’t been until recent years that this innovation has exploded in the B2B space. Industries that rely on making high volumes of payments in real time such as the travel industry have been quick to adopt this technology with huge success. But what are virtual cards? And what makes them so appealing to businesses everywhere?
What are Virtual Cards?At their core, virtual cards are digital payment instruments that operate similarly to traditional credit or debit cards, but with a few key differences. Instead of a physical plastic card, virtual cards exist solely in digital form. They are typically generated and managed through a secure online platform, often provided by banks or fintech companies. While most physical cards have expiry dates spanning years, virtual cards can be created with a lifespan of a single transaction, mere days, or even months – making them ideal for one-time purchases or recurring payments. Once the transaction is complete or the expiration date passes, the virtual card becomes obsolete, adding an extra layer of security. Because of their digital nature, they cannot be used to withdraw cash from an ATM Machine. But aside from this, virtual cards carry the same details as physician cards with a 16-digit card number, CVV code (Card Verification Value), expiration date, and connections to the same payment networks.
How Do Virtual Cards Work?The operation of virtual cards can be broken down into a few key steps:
- Generating: You can create single-use or multi-use virtual cards via a web portal or via API provided by your financial service provider. Often, you can automate the creation of cards so that you can process large numbers of transactions in real-time
- Funding: The virtual card issuer links your virtual card to a funding source. This connection allows you to load funds onto the virtual card as needed. Some suppliers such as Pax2pay, enable you to generate and link numerous bank accounts in numerous currencies, all in your business name. Meaning you can keep all funds on your balance sheet, and minimise your exposure to FX fees by sending and receiving money in numerous currencies.
- Access: You can access your virtual card details via a web portal or via API provided by your financial service provider. The card details are typically displayed as a card image with the card number, expiration date, and CVV.
- Usage: Just like a physical card, you can use your virtual card to make online and in-app purchases. When making a purchase, you input the virtual card details, and the transaction is processed as if you were using a physical card.
- Security: Virtual cards come with robust security features. You can set spending limits, cancel cards at any time, restrict card usage to specific merchants, transaction types or users, and generate unique card details for each online purchase, enhancing protection against fraud.
- Tracking: By allocating a single card to a single transaction, reconciliation is super simple. Plus, because virtual card transactions are usually linked to a comprehensive reporting suite, it is easier to track and manage your spending. You can review your transaction history, set up alerts for unusual activity, and receive real-time notifications for purchases made with your virtual card.
- Expiry: Virtual cards often have a shorter lifespan than physical cards. They can be set to expire after a specific time period, after a single transaction, or after a certain number of transactions, adding an extra layer of security.
- Reload: If your virtual card has a prepaid balance, you can reload it from your linked bank account or other funding sources. This flexibility allows you to control your spending and budget effectively.
Benefits of Virtual Cards in the Travel IndustryVirtual Cards are revolutionizing the way B2B payments are made and managed. There has been particularly strong adoption of virtual cards within the travel industry, especially among Online Travel Agents (OTAs) who are continually seeking innovative ways to streamline their operations. And it’s no surprise when you consider the benefits:
- Improved Cash Flow: For the Travel Industry, cash flow is crucial. Virtual cards facilitate quicker payment processing, ensuring that suppliers such as hotels and airlines receive their funds promptly, and that bookings can be secured. On top of this, with a supplier such as Pax2pay, all funds remain in your business name, and are only deducted at the point of authorisation which can be especially vital for smaller businesses or startups looking to maintain a healthy cash flow.
- Unlock Extra Revenue: The Travel Industry operates on incredibly tight margins, so any opportunity to unlock extra revenue is one that can’t be missed. With Virtual Cards, OTAs are able to convert their payments from a cost centre to a revenue stream, by earning cashback on each payment they make.
- Enhanced Security: One of the primary advantages of virtual cards in the travel industry is enhanced security. Traditional credit cards carry a higher risk of fraud, especially when used for online bookings. Virtual cards mitigate this risk by offering limited funds and a short expiration window. This makes them less appealing to fraudsters and reduces the potential for unauthorized transactions. Plus, they still carry all of the same protections against chargebacks as a physical card.
- Streamlined Booking: Virtual cards simplify the booking process for Online Travel Agents. They can be generated instantly and automatically, reducing the time and paperwork associated with traditional payment methods. This speed is particularly advantageous when booking last-minute travel arrangements.
- Boosting Acceptance: Ensuring that payments will be accepted is a top priority for OTAs – but it’s often easier said than done when booking flights as some airlines block certain cards. OTAs can navigate this by accessing extensive suites of cards via their virtual card provider. With the ability to choose from numerous cards for any transaction, payment acceptance can be boosted.
- Real-Time Reporting: The travel industry is notorious for its administrative overhead. Virtual cards automate payment processes, reducing the need for manual intervention. This not only saves time but also minimizes the risk of human error. Plus, most virtual card providers will also supply a comprehensive reporting suite so OTAs can quickly gain in-depth insight into your payments and quickly pull reports. One of the most significant benefits however is the ability to store unique data sets with each transaction to make reconciling transactions simple.
- Flexibility and Control: Virtual cards can give you greater flexibility and control over your payments. With the ability to monitor spending, set spending limits, create new cards, choose from a range of card types, and cancel existing cards with the touch of a button, OTAs have complete control over their payments.