For B2B payments, the pandemic may be the final nail in the coffin of the paper check — and the plastic commercial card, too.
For all the pain and loss the pandemic has inflicted on the world this year, it’s refreshing to hear something positive associated with COVID-19.
Reid said the outbreak has forced companies to acknowledge the need for B2B payments, and he predicts that the migration currently underway will be long-lasting.
“I don’t think there was ever any doubt in the industry that digitizing payments was better than the status quo,” he said. “I just think COVID proved to be one of the necessary catalysts in overcoming corporate inertia and converting businesses.”
Bidding Farewell To Plastic Cards
Reid pointed to independent industry forecasts suggesting that overall U.S. commercial card spending will grow by 20 percent over the next two years, with virtual cards accounting for almost all of that.
That will give virtual cards more than 50 percent of the market, up from an estimated 40 percent today. Those gains will primarily replace non-carded payments rather than at the expense of traditional plastic credit and purchase cards, whose share of commercial card spend will either remain static or shrink. Reid also said he expects a similar upward trend for virtual cards in other global regions.
“I think it’s really important to point out that the overall size of the B2B payments market is colossal, but only a tiny fraction of that market is carded at the moment,” Reid said.
As a result, the real opportunity right now is to capture the “net new spend” that isn’t happening on any commercial card product today, he said.
“We’ve always focused on virtualizing payment methods, whether that’s replacing manual processes or virtualizing existing commercial card products,” Reid noted, adding that many efficiencies and cost savings can come from converting to virtual cards.
The Pandemic Is Sparking Major Changes
Another pandemic-related change Reid said he sees is how payment processes involving any kind of physical contact have become essentially impossible. For example, “wet signatures on checks” have become obsolete, he said.
There have also been major impacts concerning the need for flexibility and assurances around working capital to enable businesses to operate.
“I think late payments had always been used by [some] buyers to preserve cash,” Reid said. “But unfortunately, the pandemic has made that practice a lot more pronounced.”
He said some suppliers go under while awaiting payment, while others spend money trying to collect unpaid debts. But Reid said that very few businesses actually exercise their right to charge interest on late payments for fear of upsetting clients and missing out on future contract renewals.
“And that’s where commercial cards … and virtual cards [come in],” he said. “They’re often an underestimated working capital management tool that can be used to float early pay discounts, which in turn boosts liquidity in the supply chain.”
Virtual Cards’ Many Benefits
“We don’t really see any reasons to carry plastic anymore,” Reid said, noting that employees expect the same type of payment experiences in their professional lives that they see in their personal ones. That includes things like contactless points of sale, as well as seamless, multi-factor authentication available on any mobile device.
Reid added that an increasingly tight regulatory climate and the Strong Customer Authentication (SCA) requirements of Europe’s PSD2 initiative will only underscore the disparity in user-friendliness between plastic and virtual cards.
“Authenticating transactions simply won’t be possible in all scenarios, especially where the cardholders themselves might not be involved [in the procurement of goods and services],” he said. “So, we see corporations naturally turning to virtual cards in those scenarios, purely for convenience.”
There are also financial reasons to make the shift, including many costs that are hidden with traditional payment methods but not applicable to digital products. That includes the production, management and issuance by issuers of plastic cards with chips and magnetic strips.
There’s also the manual reconciliation that companies must complete, and the expense reports that many employees fill out. Reid said that eliminating such factors “represent a clear cost that virtual cards remove.”
Additionally, there are control issues to consider, such as ensuring that everyone in a company uses preferred suppliers to maximize negotiated rates and that employee card misuse becomes difficult or impossible.
“Traditional commercial card products … definitely don’t carry the same upfront controls that virtual cards carry,” Reid said. “So, any management of non-adherence to company policy or misuse of cards is always managed retrospectively, after the horse has bolted.”
In the short term, Reid said the commercial card industry’s immediate focus will be simply further scaling up growth in B2B spend, as well as nurturing T&E spend back to pre-pandemic levels once COVID-19 has subsided.
But longer term, Reid said the focus will be on adding B2C payments, as well as “card-to-account transactions,” which he said the card networks, Conferma Pay and other B2B industry stakeholders are already working on.
Reid added that businesses need to take a consultative approach to understand their current payment processes and identify areas where commercial cards provide clear benefits.
“I think [the] message I’d leave corporates with is: ‘You don’t need to feel overwhelmed by this,’” he said. “The good news for issuers is that corporate buyers will always look to that trusted banking partner” for expert advice on payments.
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About Conferma Pay
Conferma Pay is a global financial technology company. We design and integrate virtual payment systems that provides a more efficient, seamless and secure way to pay for for businesses.
Travel Meets Payment
Conferma Pay was born in Manchester in 2005. Since then we have connected over 700 TMCs, and directly integrate with all the major GDSs and OBTs. Our roots lie in corporate travel payment integration.
We enable our payment providers to flow virtual cards into the preferred purchasing process of any business travel buyer. Crucial to this is our network of banking partners, who have issued virtual cards in over 200 countries, in 40 currencies with over 45 commercial banking partners via all major card networks.
Our ecosystem continues to expand to meet the growing requirements of our global customer base.