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Understanding Virtual Payments and Cards
As business travel begins to resume, there's a clear opportunity for companies to make improvements. The effectiveness of business travel is high—every dollar spent on business travel generates up to $14 in revenue for the business—but there's always room to optimize. What if you could cut the cost of business travel? That means that you could offer even more travel on the same budget, which could visibly heighten your ROI.
Any optimization of business travel costs is worth pursuing—and virtual payments are the foundation of optimized costs, increased convenience, and improved security in the business travel sector. Although this technology is relatively new, it offers the prospect of a digital transformation.
Business travel used to involve a bundle of cash that you carried around. It then evolved into a little piece of plastic in your wallet. Virtual credit cards (VCCs) eliminate the need to carry anything around, and the benefits don't stop there. VCCs make accounting and reconciliation an easier, nearly automated process. They dramatically enhance security, resulting in a card that can neither be lost nor stolen. Meanwhile, they contribute to the automation of travel policy enforcement—but travelers themselves aren’t inconvenienced.
In short, VCCs can make life easier for accountants, travel managers, and travelers alike. This helps increase business travel that's known to be beneficial to the company, reducing costs and increasing ROI on business travel.
What Are Virtual Payments
Virtual payments are payments that take place without reference to any physical token. For example, to make a payment on your credit card, you need to know your credit card number, CVV code, and expiration date—all of which are physically printed in plastic. To make a payment via check, you need to know your bank account and routing number, both of which are physically printed in ink. The check and the card are both physical tokens. Although the VCC may be printed out for later reference, the traveler never needs a physical copy of it to make a payment.
The disadvantage of a physical token is that it can be lost, stolen, or misappropriated. If you give someone a proverbial "blank check," they can spend it on whatever they want. Even a corporate credit card can be misused in this way—there's no way to prevent someone from using a corporate credit card to pay for their groceries or car payment, for example. This misappropriation can only be caught after the fact by looking at financial transaction records, which is surprisingly difficult to do.
A virtual payment is different because it does not refer to a physical token. There's no physical credit card or paper check that lists the virtual payment information. What's more, administrators can put up automated guardrails that blacklist everything except for pre-approved services from pre-approved vendors. Not only will this prevent misuse of funds, but it will also ensure that employees always use the most economical services from the airport to the hotel.
What Are Virtual Credit Cards?A virtual payment card is everything that makes up a credit card, minus the plastic, magnetic stripe, and embedded microprocessor (EMV) chip. A VCC contains all the same information as a credit card, with several key differences:
- First, the VCC is ephemeral--it only exists for a short time. A VCC is generated once an employee wants to pay for a flight or book a hotel, and it's deleted when the action is complete. This ephemerality makes it difficult, if not impossible, for an attacker to steal a VCC or use it to make fraudulent transactions.
- The VCC’s card value is deliberately limited. Think of a gift card that can only be used at a single online retailer—except a VCC is much more versatile and much more secure than a gift card. A VCC can be used in as many storefronts as the travel manager specifies, but it can also be used only at those storefronts, and transactions can be capped at a certain amount.
- Lastly, the VCC offers richer information than a credit card transaction. Corporate credit cards store all their information in the same bucket—there's no specific information saying which individual was using the card to make a transaction. Since each VCC is unique, however, it's much easier to identify who's using which card for what purpose.
By moving to an entirely digital payment interface—without any reference to physical payment tokens—it becomes much easier to improve the security, convenience, and traceability of online payments.
What Problems Do Virtual Payments Solve?
There are any number of pain points involved with corporate travel during business as usual.
As one example, there's the matter of traveler comfort. From an economic standpoint, the best approach to business travel would be to choose the most barebones accommodation, travel method, and transportation—but this isn't a good way to show employees they're valued. The best approach is negotiating with carriers, hotel chains, and car rental companies to procure comfortable transport and accommodation at a reasonable price.
The problem arises when employees decide that they don't like the carriers and vendors you've negotiated with—you may have negotiated a deal with one carrier, but your employees may prefer a different carrier for reasons you can’t control--better in-flight movies, maybe.. When you give these employees the corporate credit card, there's no guarantee that they won't choose to book a flight on their preferred airline, a phenomenon known as “trip leakage.” The individual differences in cost might be slight, but when you multiply the expenses over the cost of hundreds of flights per year, they add up.
VCCs help make sure that each employee sticks with the playbook. They have to stick with preferred vendors, and they’re more likely to obey company policy regarding extras.
In addition, VCCs allows travel managers to aggregate larger and more accurate transaction records than more traditional corporate credit cards. Reconciliation—the process of tying transactions to individuals—becomes automatic. You can then manipulate data and discover patterns. You can learn who's traveling the most, spending the most money, where the most popular destinations are, and which services are most expensive.
All of this is actionable intelligence. For example, if you discover that most flights are to California or Las Vegas, you can negotiate better rates with airlines that serve these areas. You might also ask, “Are our most lucrative customers in California or Las Vegas, or do our employees just like flying to Las Vegas?”
How do Virtual Payments Work?
Making a payment using a VCC is a relatively simple process. Much of it takes place under the hood, which means that most employees won't need significant amounts of training or preparation to use this tool—a valuable consideration for companies who wish to adopt this payment method.
In step one, the traveler either contacts the travel manager or books their travel using an online portal. This tells the payment processor to create (deploy) a VCC and then send its information to the point of sale. The supplier then receives the virtual card as payment.
Once the supplier processes the payment, the payment card generates an email receipt, which both the traveler and the travel manager receive. After the charge is complete, the virtual credit card debits the company's bank account or line of credit and then automatically deletes itself.
Although the card is deleted, its transactional data remains available in a database for reporting and reconciliation. This makes it easy to aggregate financial data and gain insights into spending patterns. This is one of the foremost benefits of virtual payment cards, but it is certainly not the only benefit they can offer.
Virtual Credit Cards Increase Security
As we've mentioned, VCCs are designed so that they can't be lost, stolen, or misappropriated. A VCC can't be physically stolen—since there's no physical token to reference—and it can't be digitally stolen because it deletes itself once used.
We've also mentioned that a VCC can't be used for anything other than its intended purpose. Travel managers can essentially set up guardrails using a Virtual Card Account, which is the administrative hub for VCCs within a company. With this, the travel manager can designate specific merchants where VCCs can be used and set a price ceiling to ensure that users don't overspend.
Restricting VCCs to specific merchants has more advantages than cost alone. The COVID-19 pandemic is still ongoing as of this writing, which means that travelers are more cautious than usual. Using a VCA, you can manually restrict card usage to include only those organizations that abide by the American Hotel and Lodging Association guidelines for enhanced cleaning and safety, for example. You might even restrict your pool of VCA users to include only those employees who have a vaccine card for additional safety. Finally, VCCs help minimizes contact with hotel and airline staff, further reducing the likelihood of transmission.
Virtual Cards Save Money in Accounts Payable Operations
Let's talk about reconciliation. This is the formal name for the process that occurs when a company's expense is matched with the service or product the expense pays for.
In most corporate transactions (excluding travel), reconciliation is performed via invoice—to get paid, the supplier must send over a document that says how to pay them and what they're getting paid for, making reconciliation a lot simpler.
Transactions made via corporate credit card don't have this advantage, however. Accounting departments need to manually hunt through a list of credit card transactions and match them up with an employee's self-reported expenses. This can be frustrating because manual reconciliation has a much higher chance of errors and inconsistencies. From conversations with travel managers, we find that they spend a whole work week every month reconciling expenses with payment data, which is frankly time best spent doing something else.
VCCs can reconcile payments with services automatically, which creates many benefits. First, travelers can get back the time they spend creating expense reports, and travel managers can get back the time they spend performing reconciliation. This improves worker productivity, which increases revenue for the organization. In addition, the VCC prevents unauthorized transactions at the point of payment. This means there's less time spent debating with employees over what counts as a covered expense.
What are the Different Types of Virtual Cards?
Virtual payment cards can also be known as procurement cards and purchasing cards. Each works slightly differently from a VCC. Every employee within the department can use a ghost card, for example, and the card is persistent—it doesn't delete itself after use.
Meanwhile, procurement cards—which are the same as purchasing cards—are more similar to VCCs. Each procurement card can be limited to certain vendors, and each procurement card can only be used for a limited time. Instead of deleting itself after each transaction, procurement cards can be used for multiple transactions within a limited period.
Any card that persists for more than one transaction, or is available to more than one person, has a heightened opportunity for fraud. Therefore, a VCC represents the best possible option.
Choosing a Virtual Payment ProviderFinding a virtual payment provider means checking all of the boxes below:
- Choose a VCC, not a ghost card or a procurement card. A VCC offers the best guarantee against fraud and overspending.
- VCC can only be used with approved vendors for approved services below a specific dollar limit and for a narrow card lifetime, one that matches the trip
- Administrative tools allow for automated reconciliation and expense tracking
Rewards are another thing you might look out for. Just like credit cards, certain payment cards offer cash back for purchases made with certain vendors. If you rely on these vendors and make purchases often, you could substantially offset your expenses related to travel.
The Walt Disney Company—a Real-World Case Study for Virtual Payment Cards
With thousands of workers and a global footprint, employees from The Walt Disney company travel often. As you might imagine, large-scale travel within a company of this size can make reconciliation a daunting prospect. That's why the organization turned to GraspPAY, Grasp Technology's VCC program, to reconcile travel expenses using third-level data matching automatically.
Historically, reconciliation represented a huge problem for The Walt Disney Company. The process took too long to gather meaningful data on expenses, there was no standardization of invoices, and corporate credit card payments too often gathered interest before being resolved. In the meantime, travel managers spent much of their productivity on the reconciliation process.
By switching to VCCs for automated reconciliation, The Walt Disney Company has reduced errors by 90%. In addition, the organization has been able to save considerable amounts of time for both employees and travel managers—in addition to realizing a dollar savings of up to $2.8 million per year.
Travel can create a lot of wealth for companies—and reducing the costs related to travel can create even more. With VCCs, companies can effortlessly save time and money on travel while improving the security of their operating funds. For more information on how you can set up a VCC program of your own, check out our full case study on The Walt Disney Company today!