Payment solution: corporates embrace virtual credit cards
For some time now, the dominant theme in digital payments for retail customers has been: “build it and they will come”.
It’s a different story for corporates, where the rate of mobile payments innovation and adoption has been much slower, apart from some key emerging niches including virtual credit cards.
A virtual card is exactly what the name implies: instead of the traditional plastic, a random card number is generated by software provided to the corporate customer. The 16-digit number can be accessed through an app on a mobile device, or directly by the company for a business-to-business purchase online.
In most cases the number is used only once, it can’t be traced back to the customer’s identity or the original credit card, and it can expire within a month if it’s unused. The big attraction for corporates, apart from the obvious security benefits, is greater transparency through the course of the transaction, which leads to a much more efficient internal reconciliation process.
Kevin Phalen, head of global card, comprehensive payables at Bank of America Merrill Lynch, says customers in Australia are starting to embrace virtual cards, although the rate of adoption has been slower than in the US or Britain.
Phalen has responsibility for all payments solutions for BAML’s corporate customers.
The global adoption of virtual cards has driven surprisingly strong, 10-15 per cent compound growth in the volume of BAML’s corporate transactions over each of the past eight years. Last year, it processed $US57 billion ($76bn) in payments.
Unlike consumer credit and debit, which both slumped in the wake of the global financial crisis, Phalen’s volumes lifted.
“Corporate treasurers wanted to know: ‘Where’s my cash? Where’s my payments?’ and we had a great solution that enabled them to track those things globally,” he says. “So we were able to grow through the recession.”
As the uptake of virtual cards increases, the percentage of transactions facilitated by a physical card is falling dramatically, but not by anywhere near enough to shrink the size of Phalen’s portfolio.
He is also investing heavily in full digitisation of payments through mobile devices.