Virtual cards promise a revolution in B2B payments, offering efficiency and certainty in transactions, yet their adoption remains stymied by a critical bottleneck: suppliers’ reluctance to accept them. Despite a clear economic advantage, the uptake is far from the potential growth projected on the horizon, and the industry does not yet have good enough tools to improve the value proposition of virtual cards for suppliers, nor to explain that value proposition well enough or to sell and implement the product.
It’s a mismatch that has not escaped the attention of Paul Christensen, CEO of B2B payments accelerator Previse, who highlighted this mismatch, noting that while 80% of buyers favor virtual cards, their use accounts for just 2% of their accounts payable (AP) transactions.
This hesitance among suppliers is a significant pain point in buyer-supplier dynamics. As Christensen told PYMNTS CEO Karen Webster recently, the situation recalls a prevalent business adage: “80% of company failures are due to cash flow issues. The uncertainty of waiting and chasing for payment is a real problem, and virtual cards, with the right tools, could solve that.”
Virtual cards could alleviate many of these issues, yet joint research by PYMNTS Intelligence and Previse reveals a stark reality: 60% of middle-market firms are uncertain when they’ll collect payments from their counterparts. The cost of uncertainty is measured in more than dollars and cents. For corporates, it becomes difficult to plan, to run operations or make decisions about near- and long-term strategies.
Uncertainty is rampant as suppliers seek to collect payments owed to them by buyers and as traditional avenues of credit and working capital are constrained and/or expensive. There is a lot of waiting and chasing on typical net term of 60 days agreements, Christensen said, the average payment comes in even after that period — and terms of 90 days or longer are not uncommon, with late payments on top of that.
“If it happens to be that you have to meet payroll,” said Christensen of the suppliers, “that’s going to be problematic.”
“One positive development is that the payment networks,” he said, “have been quite forward thinking in terms of facilitating flexible interchange rates,” that can be applied to different transactions and use cases, but the issuers are extremely limited in their ability to apply those flexible interchange rates, and so they are not having nearly as big an impact as they could.
As Christensen said, virtual cards are used to satisfy only 2% of accounts payable transactions. Move the needle just a bit — by, say, a percentage point or two — and that means hundreds of billions of dollars in B2B spending could become more efficient in terms of cash flow visibility, transparency and certainty.
“Thousands of buyers have said that they love virtual cards,” Christensen said, “and yet very few suppliers are willing to accept them despite the fact that they are really good products. It’s obvious to see where the system is failing. It’s supplier acceptance.”
The reason for the supplier reluctance, Christensen said, boils down to the fact that issuers, acquirers and networks don’t yet have the tools to improve the value proposition of virtual cards for suppliers, nor to explain that value proposition well enough or to sell and implement the product.
“They don’t have the tools to explain the value to the suppliers, or even to find the suppliers in the first place” in terms of contact information, Christensen said. The merchant acquirers, he told PYMNTS, are still reliant on sales agents with limited information and cold phone calls to reach out to suppliers.
Part of the inertia lies with human behavior, too, Christensen said, adding that suppliers are used to checks or ACH, and they are perceived to be free (well, except for the uncertainty factor), whereas cards have a more obvious and explicit cost.
But, as Christensen said, there’s an “obvious use case” for virtual cards when it comes to supplier payments, particularly when the supplier/buyer interactions are frequent, on a recurring basis.
“The vast majority of suppliers are long term and consistent,” he said. “They’re billing their suppliers every week, every month and every quarter … virtual cards are a compelling way to pay them all” while sidestepping manual processes.
In addition, the value proposition of virtual cards to suppliers can be significantly improved by using automated payment initiations. This removes the “dependency” on the buyer’s AP process, so that suppliers can receive automated payments with certainty from as early as the moment their buyer receives the invoice, with no waiting and no chasing.
The issuers, acquirers and networks, he said, can leverage machine learning and other technologies to get granular insight into the suppliers and buyers — their needs, the value that can be delivered and the costs and benefits of alternative payment methods.
“The banks and the networks and the merchant acquirers all need to make money,” he said, and platforms such as on offer from Previse connect millions of suppliers and buyers and identifies virtual card opportunities.
With the right tools, Christensen said, flexible interchange can also be a game-changer. The issuers and acquirers can provide the suppliers with a bespoke offer at a rate that is attractive enough for that supplier to accept virtual card.
“Maybe you would never accept at 2.5%,” Christensen said, “but maybe you would accept at 1.8%. And is that still attractive to the issuer and the ecosystem that needs to provide that service to you?”
The data, presented in visual forms, informs parties about all the aspects of a virtual card program at a granular level, including the impact on rebates and working capital by invoice, bringing virtual cards, he said, “to life.”
In the months and years ahead, Christensen said, “I can see these tools enabling the industry to put one to two trillion dollars” on virtual cards in the next five years. Let’s move the 2% of accounts payable on virtual cards to 5% or 10%. With the right tools trillions of dollars will move onto virtual cards.”
