Virtual Cards in Key Industries: Current Use Cases and Future Potential
Virtual cards have established significant use cases in industries such as healthcare and travel, where both buyers and sellers recognize the benefits of automation, faster payment processing, enhanced data delivery, and control over payments. These sectors continue to generate substantial spend volumes; however, finding new industries that can benefit similarly has become increasingly challenging due to a slowdown in spending growth.
According to a recent paper titled The Virtual Economy: Identifying Supplier Industries Receptive to Virtual Cards, an analysis of macroeconomic factors reveals promising areas for the adoption of virtual cards. The research, authored by Hugh Thomas, who is the Lead Analyst of Commercial and Enterprise at Javelin Strategy & Research, focuses on identifying industries that are open to this payment method from both a buyer’s and seller’s perspective.
Setting Forth the Criteria
The research suggests several criteria common to industries that make virtual cards a viable option for suppliers. One such industry, software businesses, stands out due to its complex buyer base, long payment periods, higher bad debt losses, and greater working capital needs.
According to Thomas’s findings, the characteristics of the software industry closely align with those of existing use cases like online travel providers and healthcare industries. For example, a major buyer such as Google may take longer to make payments due to complex approval processes and licensing agreements, creating opportunities for virtual cards.
Unprecedented Research
Thomas employed four key metrics—working-capital needs, bad debt, buyer base pull (a measure of the complexity and willingness of buyers to use card payments), and current acceptance rate—to gauge an industry’s receptiveness to virtual cards. He utilized three national datasets alongside previous research on buyer receptiveness.
The model generated highlights existing industries where virtual cards are already common, such as online travel providers and healthcare. It also identifies potential new markets by evaluating these metrics.
The Importance of Credit
A major advantage of virtual cards is their ability to shift credit management costs from suppliers to card issuers. This feature is particularly useful in industries with frequent need for credit adjudication, such as new supplier relationships and the high volume of low-value transactions.
The study emphasizes that cost remains a significant barrier for suppliers considering virtual cards, including setup and processing costs. However, the models aim to identify industries where these acceptance costs are comparable or lower than traditional payment methods, through faster payments, reduced bad debt, or administrative cost savings.
Moving in the Right Direction
Despite challenges, the evolution of virtual cards is favorable. Payment networks are increasingly adapting interchange rates to better reflect the value provided by these cards, and lower merchant discount rates for businesses providing Level 3 data support their adoption.
These changes, alongside rising awareness in the industry, signal a promising future for virtual cards within the broader commercial payments landscape. The research underscores that the insights developed can help providers tailor their strategies to maximize growth and acceptance of virtual card solutions.