Virtual cards: 10 benefits & disadvantages you may face

Why virtual cards might be right for you?

If you're considering a flexible and secure way to manage business expenses, virtual cards could be your solution. Compared to physical cards, a virtual card approach might be right for you because your business can instantly create new virtual cards for its employees and set spending limits and usage scope for each card. This gives the business control over how much each employee can spend and which expense category or merchant type they can use it for.

To make contactless payments using virtual cards, you can simply add them to mobile wallets like Apple Pay and Google Pay.

Understanding what virtual cards can do as your business grows will help boost financial efficiency and streamline the expense tracking and reporting process. Here are several reasons why your business may need virtual cards:

• Employee cards: Your employees can use virtual cards for business-related expenses, such as business travel, meals, or office supplies. This eliminates the need for them to submit expense reports and wait for reimbursements, saving time and effort on both ends. In particular, as the global business travel industry accelerates its rebound, with projections to reach $1.8 trillion USD by 2027¹, businesses will increasingly use virtual cards to manage their employee spending during business travel.

• Corporate cards: For businesses with multiple teams or departments, virtual cards can be issued to different groups or projects. This helps with better expense management and tracking for each team, giving you a clearer picture of where funds are allocated. For instance, virtual cards can be used to manage recurring software subscription payments and digital ad spend. Using a virtual card lets you easily track these expenses and cancel the subscription if needed by simply canceling the virtual card itself.

• Automated expense management: Virtual cards can effortlessly integrate with your existing accounting systems, like Xero or Quickbooks, streamlining the reconciliation process and reducing administrative overhead. Furthermore, businesses can use them as employee cards to simplify employee reimbursements and reduce out-of-pocket expenses from employees. By automating expense tracking and reporting, virtual cards significantly lower the risk of errors and employee fraud, constituting approximately 5% of a company's annual revenue.²

• Enhanced security: Unlike physical cards, virtual cards cannot be lost or stolen. Moreover, you can instantly freeze or cancel a virtual card if you suspect any fraudulent activity, providing an added layer of security for company funds.

5 benefits of virtual cards in the US

Integrating virtual cards into your business operations offers numerous advantages, such as improved financial management, increased security, and enhanced operational efficiency. Let's take a look at five key benefits of virtual cards:

• Global acceptance: If your company frequently engages in international transactions — whether for managing vendor payments, covering business travel, or paying consultants — multi-currency solutions like Airwallex’s Global Accounts and Borderless Cards offer a cost-effective way to handle cross-border payments without excessive fees. For example, HJS Packaging and Distribution, a supply chain company based in Milwaukee, uses Airwallex’s virtual cards alongside Global Accounts to manage payments across USD, CAD, and EUR. This setup has enabled HJS to consolidate vendor payments and eliminate high FX markups, resulting in savings of $150,000 to $180,000 annually. By centralizing financial operations, HJS gains real-time oversight and supports its global expansion with greater efficiency and control.

• Instant card creation: Virtual cards can be created instantly and used immediately for transactions without waiting for physical cards to arrive in the mail or having to retrieve a card from the office physically. If you have a growing team, this enables you to quickly issue a virtual card for your new employee without any delays. Moreover, in instances where you have to cancel a virtual card due to suspected misuse, you can create a replacement card on your bank or fintech provider's website right away, ensuring your ongoing transactions remain uninterrupted.

• Empower employee spending: Businesses can create unlimited virtual cards tailored for various purposes and employees. Virtual cards provide employees with a convenient and secure way to make purchases on behalf of the company, such as flights and hotels for business travel and entertainment expenses.

• Streamlined expense management: Integrating virtual cards into expense management systems offers businesses a more efficient way to track and control spending. On average, it takes 20 minutes to complete one expense report.³ When a payment is made with a virtual card, the transaction details are immediately recorded in the expense management system, freeing up the time needed for collecting receipts and manually entering data. This real-time visibility enables companies to monitor expenses as they happen, allowing for more accurate budgeting and financial planning. As virtual cards provide comprehensive transaction data, including merchant information, date, amount, and category, they streamline the process of categorising expenses and provide more insights into company spending. The detailed collection of data and real-time monitoring aids businesses in a much faster and more precise reconciliation of accounts.

• Enhanced security: As mentioned, virtual cards offer real-time visibility into employee spending, allowing businesses to track expenses as they occur. This enables quick identification of overspending or any fraudulent activities, reducing the risk of financial loss. Additionally, virtual cards can be issued for specific uses with set limits and narrowed down to specific merchant types if needed. This makes it easier to track spending and prevent unauthorized transactions. Virtual cards can be swiftly frozen or canceled on the spot if any unauthorized use is suspected. This provides an additional layer of security compared to physical cards, where deactivating and reissuing can be time-consuming and costly.

5 disadvantages of virtual cards in US

When rolling out virtual cards to your company, you could face several hurdles, such as providing employee training, card fees, and limited card acceptance. Here are some potential disadvantages of virtual cards to consider:

• Employee resistance: Some employees may be accustomed to using their own personal cards or physical corporate cards and are hesitant to adopt virtual cards. A seamless transition to virtual cards necessitates company-wide training to ensure all employees are comfortable with the new system. Luckily, most virtual cards are easy for employees to learn and use. They can simply add the cards to their phone’s Apple Pay or Google Pay to get started. Moreover, virtual cards have the benefit of streamlining the expense tracking and reporting process for employees as an added incentive for them to switch over.

• Reliance on the phone: One disadvantage of virtual cards is that they must be stored on mobile wallets or payment apps and accessed through a phone or laptop. However, if your device is out of battery or has a poor connection, you won't be able to use your virtual cards. In such cases, you'll need to use cash or physical cards for payments when smartphone access is unavailable.

• Regulatory and compliance issues: Businesses must be adept at selecting a virtual card provider that complies with regulations. Regulatory standards can vary significantly between regions and industries, meaning businesses must invest time and resources to ensure their chosen provider is fully compliant. Additionally, these regulations are subject to change, necessitating continuous monitoring and updating policies to maintain compliance.

• Fees: Some virtual card providers may impose various fees that add to the overall cost of using these cards. Issuance fees may be charged each time a new virtual card is created, while transaction fees are incurred each time the card is used for a purchase. Additionally, maintenance fees may be levied on a regular basis simply to keep the card active. Using Airwallex Borderless Cards, US businesses can enjoy a fee-free experience for both domestic and international spending. The cards draw directly from multi-currency balances to avoid FX fees, and if a needed currency balance isn’t available, Airwallex auto-converts funds at market-leading FX rates. Additionally, businesses can earn up to 1.5% cashback on eligible local spending in USD, all while accessing these cards for free.

• Acceptance: While becoming increasingly popular, acceptance of virtual cards is not universal. Businesses that work with a broad range of suppliers may encounter resistance to virtual payment methods. Due to their established reliability and widespread recognition, traditional payment systems like bank or SWIFT transfers remain the preferred choice for some suppliers. To get around this, businesses may need to maintain multiple payment solutions to accommodate varying supplier preferences and address their own payment needs. In addition to their virtual Visa cards, Airwallex offers international money transfer services to 150+ countries to help businesses send payments seamlessly, regardless of what their suppliers may prefer.

Virtual cards vs. physical cards

When comparing virtual cards to physical cards, the main differences lie in their form and functionality. Virtual cards offer enhanced security features and flexibility, making them ideal for businesses that seek more efficient budget control and expense management. Physical cards, traditionally issued by banks, usually offer less room for customization and take a longer time to be issued.

1. Form: Virtual cards exist purely in a digital format and are accessed via mobile wallets or payment apps on your phone or computer. Physical cards are tangible and plastic, designed to be carried in wallets or purses.

2. Security: Virtual cards are often deemed more secure, allowing users to freeze or cancel them instantly. This feature helps prevent unauthorized transactions and reduces fraud risks. Unlike physical cards, which can be lost or stolen without the owner's awareness, virtual cards require a login or biometric authentication, adding an extra layer of protection.

3. Issuance: Virtual cards can be generated instantly online, offering immediate accessibility. Physical cards require a much longer processing time and may involve additional steps, such as mailing the card to the user's address.

4. Tracking and monitoring: Virtual cards allow for real-time transaction tracking, with detailed information on each purchase. They can also easily integrate with accounting systems like Xero or Quickbooks, making expense management and budget tracking more efficient. Physical cards, on the other hand, may require manual transaction entry into these systems, which can be time-consuming and prone to errors.

5. Customization: Fintech providers like Airwallex offer virtual cards that are highly customizable with adjustable spending limits and specified merchant types. While all Airwallex cards come with a default transaction limit of 50,000 USD (or the equivalent in another settlement currency), businesses have the flexibility to set lower limits as needed. This feature allows them to allocate different spending limits to various teams or projects according to the company's budget. In contrast, physical cards provided by traditional banks may impose spending limits based on your business's financial standing and offer limited customization options.

With their convenience and real-time tracking capabilities, virtual cards are fast becoming the go-to choice for many business transactions. For those looking to leverage the benefits of virtual cards, the Airwallex Borderless Card allows users to make transactions across multiple currencies without worrying about hidden fees. You can create as many virtual Visa cards as you'd like at zero cost. For businesses requiring physical cards, Airwallex also offers free issuance, ensuring flexibility and convenience for all. With one centralized platform, you have better visibility over your team's budget and can streamline your expense management more efficiently.

Sources & References:

1. https://www.gbta.org/global-business-travel-industry-forecast-is-for-accelerated-rebound-spending-to-reach-1-8-trillion-by-2027/

2. https://s3-us-west-2.amazonaws.com/acfepublic/2018-report-to-the-nations.pdf

3. https://www.gbta.org/how-much-do-expense-reports-really-cost-a-company/