How Fintechs Changed Virtual Cards

Image from Marqeta’s blog, “How virtual cards can enable faster disbursements.”

Virtual cards are not a new product. They’ve been around for over a decade. But why are they so popular right now? Well, I think it’s simple: they’ve never been easier to issue and easier to reconcile.

For too long finance teams have always been interested in the concept of a virtual card and it’s potential. At it’s surface, they understood the value that virtual cards could bring to their business. But if that finance team had to think through how to actually use the virtual cards (including the integration and implementation), then the cost of it seemed to outweigh its benefits. In other words, it sounds pretty cool but they just don’t have the time to think about all of that.

Likewise, fintechs have also understood the value that virtual cards could bring to finance teams. They also recognize the revenue implications. Thus, it only makes sense that every fintech that has entered the corporate card space did so by providing some form of a virtual card solution. To note — I say “some” form because virtual card solutions across fintechs vary in specific ways. But even within those variations, there are some consistencies and key aspects (which we’ll briefly touch on) of virtual cards that these fintechs have totally nailed.

Classic move by these fintechs, am I right? They find an area of payments that could use some serious automation, build a bunch of APIs and absolutely crush it. And as a result, there’s been some serious activity around these fintechs. Just take a look at what has happen over the last few months:

• Ramp Financial raises $115 million in April 2021 (Series B)
• Brex raises $425 million in April 2021 (Series D)
• Bill.com acquires Divvy for $2.5 billion
• Airbase raises $60 million in June 2021 (Series B)

Okay. But what is a virtual card? Simply put, virtual cards are immaterial credit cards. Like an ACH payment, the transaction does not require anything physical. It’s completely electronic and yet with a virtual card, companies still get all the benefits that are usually associated with paying with a credit card: working capital and rewards. So what has changed regarding the virtual card space?

The diagram above illustrates (at a very high level) how automated and effective a virtual card program can be using one of the fintech solutions. Here are some of the key features and benefits:

Reconciliation:

• Unique cards generated on demand with upfront coding. As you see above, virtual cards issued are done so per vendor and are unique, which makes the reconciliation process easier to manage. And if cards are already coded, then you don’t need reconcile after the transaction post.
• Likewise, if you have employees that need to buy something, they simply put in a PO request and get a virtual card on the spot. This altogether eliminates the need to do an expense report and request for a reimbursement.
• Furthermore, virtual cards help manage fraud: If you issue virtual cards per vendor, per department, it’s much easier to deal with the effects of card fraud. Think about it, when fraud happens, you’re not reaching out to every vendor and replacing their card number. You only need to reach out to that one vendor…

Automation:

• The circular arrows illustrate the beauty of the APIs used. These fintech platforms directly integrate with your accounting software or ERPs, making it easier than ever to auto-reconcile. This part is very important and key to the innovation that has taken place between these fintechs. Rather than leaving it to the finance teams to figure out how to implement and integrate these virtual cards, these fintechs have already done it for them. Thus, after a finance purchases a fintech platform, they are ready to start issuing virtual cards as if it were a natural and existing part of their payment process.

Final Thoughts:

The potential value of virtual cards has always been there since their very fruition. But fintechs know that only their true value lies in their ease of use and automation. This is why fintechs are raising the cash they’re raising, partnering with banks and even acquiring other fintechs that have a more streamlined virtual card offering. In other words, virtual cards are all the rage now because fintechs figured out how to make them live up to their potential.