While their novelty means that they’re not the most well-known part of modern business, virtual credit cards represent one of the fastest-growing solutions for fintech financing. In fact, a 2019 report from Juniper Research indicated that the annual value of virtual credit cards would balloon by 90% to $1tn before 2022, a growth rate that ought to create a conversation about their long-term use.
At the time, virtual credit cards represented such a small part of corporate financing that even exponential growth wouldn’t have toppled the enduring might of standard cards. Juniper’s estimates did eventually fall wide of the mark (a figure of $500bn before 2025 seems to be a more reasonable expectation) but the popularity of virtual credit cards does continue to appreciate, nevertheless.
There’s an obvious question to answer, here – what are virtual credit cards? Similar to their plastic namesake, virtual credit cards are a way of organizing capital for business needs, such as transport, hotels, and even entertaining. They have no physical presence and, sometimes, are only valid for a single purchase. Put another way, Finextra writer Arseny Kostenko described them as an “avatar” for an anonymous funding source.
The benefits for businesses of all kinds can be numerous. As an example, reimbursements are handled digitally. Card provider Moss claims that online transactions can be submitted in just five minutes via its expense management solution, which includes support for standard accounting software such as Sage and QuickBooks. To reduce the amount of time that employees remain out-of-pocket, reimbursement can be settled either directly or via an amendment to their regular salary.
In addition, all the elements that are relevant to employee transactions, like budgets, currency exchange, receipts, and even distances for travel, can be managed in the app. This reduces paperwork and ends the reliance on convoluted spending policies. Whether virtual credit cards are useful for each individual business is, of course, debatable but there are some industries that seem to have taken a liking to the idea.
The transport sector, including shipping and freight, could become one of the biggest proponents of virtual credit cards over the next few years due to a need to reimburse drivers for fuel. However, the increasing cost of road expenses does present a challenge, namely, that settling costs immediately at the point of sale means that employees could find their finances impacted without swift reimbursement.
Juniper also predicted that healthcare would make moves toward virtual credit cards in the near future. This seems like a much more likely scenario than the previous, largely due to one of the major benefits that virtual cards have over physical ones – a near immunity to crime, both cyber and in-person. A report from US procurement company Beroe, Inc. also recommended the uptake of virtual cards as a safeguard against fraud.
Of course, virtual credit cards have applications in every industry that requires employees to make company purchases, i.e. almost all of them. Future uptake may increase for one major reason – digitization. Of 1,000 companies (sales of $10m to $1bn) surveyed by The National Centre for the Middle Market, 46% of respondents claimed that making operations digital was a priority.
Between 2020 and 2021, one in three American firms had abandoned checks for electronic payments in response to security concerns and turnaround times associated with more physical methods. This abandoning of antiquated payment options and ways of accounting is a win for virtual credit card providers, as well as just about any service that lacks a real-world product, e.g. software developers.
Inevitably, there is a potential issue on the horizon, albeit one that affects normal cards, too. Companies tend to restrict credit card usage to trusted senior management. Why? Higher-ups are perceived as less likely to engage in careless usage or, worse, use business capital for illicit means. Having said that, the high levels of security associated with virtual credit cards could reverse this trend, as company fidelity is no longer a basic requirement for issuance.
As a surrogate for a physical thing, virtual credit cards are invading a very crowded space, i.e. the online payments arena. Virtual cards are very similar in practice to digital wallets. Just like Apple Pay and PayPal, they provide a metaphorical face to something hidden behind the scenes. The corporate aspect of virtual credit cards does give them a different audience compared to consumer products but there’s no denying that they have competitors.
By 2026, the value of the digital payments market will exceed $19.89tn, according to a report from Fortune Business Insights. Behind the major plastic card issuers, PayPal has a market cap of $305.6bn. The closest corporate processor has a market cap of $110.1bn. This vast gulf in value is easy to explain. PayPal is an all-purpose provider, while business-orientated solutions are exactly that – business-orientated.
It’s worth taking a look, here, at the position that traditional credit cards are in, as a way to inform the discussion about virtual’s popularity. As we’ve discovered, virtual credit cards are an increasingly popular option for company spenders but this growth isn’t coming at the expense of plastic. Management consulting firm Kearney even went as far as to describe the standard credit card market as possessing “untapped value”.
With a value north of $4tn, bank-issued credit cards will continue to provide both an antithesis and alternative to virtual options. This isn’t necessarily a bad thing. There are advantages and disadvantages to both ways of moving money around. A good example is plastic’s global, almost universal acceptance versus virtual’s more limited use in high street stores. There’s also a public perception that virtual credit cards are a temporary convenience because they’re sometimes given out when a physical card is lost or stolen.
Overall, company knowledge of virtual credit cards is on the rise despite intense resistance from more conventional payment methods. However, expect uptake to remain low while momentum gathers. If virtual credit cards can navigate point of sale payments, allowing expansion into fleet and transport operations, virtual cards could start to erode the dominance of plastic over the next few decades.