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Virtual Card Payments 101

what are virtual cards
“Virtual” is quite a buzzword today. We have access to virtual realities, virtual games, virtual assistants, virtual shoppers, virtual tours — virtually anything you can think of.

And what do all of these virtual offerings have in common? Generally speaking, they are all computer-generated simulations or digital representations of actual, tangible things.

In the B2B payments world, “virtual credit card” is a hot topic in the industry. Yet there are several varieties of virtual cards available today, and it’s important to understand the differences between each type. 

A virtual credit card (also called a “ghost card”) is a card number that does not exist in plastic format.Twitter_icon-1.png Card issuers provide virtual credit card numbers to their customers as a complimentary service when customers want to make an electronic payment without using their plastic card number or a “real” card account. Virtual credit cards are typically used for transactions that take place over the Internet, and they can also be used for transactions via phone, mail or fax. The virtual card number functions like a token and cannot be traced back to the original credit card account, keeping both the card information and the customer’s identity information secure while also allowing for check-like controls on individual transactions.Twitter_icon-1.png

Virtual credit cards were introduced in the early 2000s, and in their early years were primarily adopted by specific industries, such as travel and vehicle maintenance/repair. In recent years, however, industries all across the board have realized the value and potential of using virtual cards for electronic B2B transactions. Let’s take a look at the three primary varieties of virtual cards available today.

  1. Single-Use Virtual Card: Single use means just that — it’s a virtual card number that is valid for one use only. Once that single-use payment has been processed, the virtual card number is no longer valid. Single-use virtual cards typically have tight controls associated with them, such as the amount (which can be a range of amounts or one specific amount), expiration date, merchant, and even MCCs, among other parameters. With amounts, single-use virtual cards can be authorized to use with one exact amount only (such as $100), or they can be authorized for multiple transactions that ultimately result in that one exact amount (such as five $20 transactions). Single-use card payments also tend to be attractive to vendors because they can get paid faster and achieve more efficient reconciliation.
  1. Pseudo Virtual Card, aka Third-Party Virtual Card, aka Authorization-Only Virtual Card: This type of virtual card, commonly known by these three monikers, is a cardless account number that is tied back to a corporate card account at the processor. It’s considered “third party” because this virtual card type is provided for use by a third party other than the issuing processor. In addition, these virtual cards are used only for authorizations; transactions don’t post to them. Like single-use virtual cards, though, these virtual cards also have tight controls that can be set around their use, such as limiting the amount, expiration date, merchant, MCCs, etc. However, these virtual cards require additional processing time and costs when compared to single-use cards.
  1. Lodge Card: Also a type of cardless account number, a lodge card is provided to the vendor with an established credit limit for invoice payments and/or for goods and services. A lodge card number can be “input” into a POS terminal more than once, but transactions can never exceed the authorized credit limit. As with single-use and pseudo/third-party/authorization-only virtual cards, lodge cards typically have controls that can be set for expiration dates, MCCs, etc. However, given that lodge cards make transactions with the same virtual number over and over, they’re recommended for use only with highly trusted vendors.

Whether you adopt single-use, pseudo/third-party/authorization-only, lodge, or any combination of these virtual card types, each one offers levels of security, efficiency and control needed for electronic B2B payments.

Be sure to check out these 7 reasons why B2B virtual card payments are growing so rapidly. If you’re not yet making virtual card payments in your Accounts Payable department, you’re not realizing benefits such as reduced fraud risk, improved payment and remittance data, and lower costs (to name a few).

And if you’re considering a virtual card provider, remember not all are comparable. AOC Solutions, which just celebrated 20 years in business, was an industry pioneer in virtual card payments and continues to focus the company’s innovations on this area of B2B payments technology.

To learn more about virtual card payments, please reach out to us. We’ll connect you with a consultative expert who can answer all of your questions.

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Kevin Woods

As Executive Vice President of Global & Strategic Initiatives at AOC Solutions, Kevin Woods is responsible for the strategic direction of AOC’s Commercial Payments division and the EnCompass line of business, which is AOC’s flagship commercial card management and accounts payable payments solution. Kevin is a recognized industry expert in commercial card technology, reporting and card-based payment systems, as he has been involved with commercial card products, services and programs since 1992.