What is a Virtual Credit Card and How Does It Work? | J.P. Morgan

2024.12.12 21:04


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Insights Client Stories Newsletters Insights Payments Commercial Cards Understanding virtual credit cards

Payments

Understanding virtual credit cards

March 22, 2024

Virtual cards are an efficient and secure way to issue payments—without the need for a plastic card.

Overview

Key takeaways

Virtual business card programs can instantly generate unique 16-digit card numbers and expiration dates for a single transaction, so a specific payee can only access the approved amount of funds. Virtual cards offer multiple benefits, including greater visibility, security and controls, plus improved expense management. When looking for a virtual card provider, it’s important to consider integration with existing systems and employee training.

Everything is going virtual—including corporate card programs . Unlike traditional corporate cards, virtual credit cards don’t have a physical card. At many companies, they serve as a complement to other physical card options.

The optional one-time-use functionality of virtual cards allows for tight controls and greater visibility over spending. Companies can use virtual cards to improve payment and data exchange processes and streamline supplier, vendor and customer payments .

Find out more about virtual cards and how they work. 

What is a virtual credit card?

Virtual credit cards are digital credit cards that function like physical credit cards—but without the plastic. Rather than providing the same card number to multiple vendors, companies can limit their exposure to potential fraud by generating different 16-digit card numbers and expiration dates for each transaction. With the unique number, the payee can only access the approved amount of funds. 

Virtual card uses

There are countless ways companies can effectively use virtual cards, including:

Accounts payable transactions , such as supplier or invoice payments Claims payments , such as reimbursements through insurance policies for cars, home repairs and hotel lodging Travel management payments for work-related lodging, airfare and other costs Gig economy reimbursements to independent contractors for car rentals, fuel costs and other expenses

    

Our team can help you find the right commercial card for your business.

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How do virtual credit cards work?

After they’re approved for a line of credit on a virtual business card program, companies can issue virtual cards and start sending payments easily via a five-step process:

The company sends an approved payment file to its virtual card provider, typically a financial institution. The card provider generates a unique 16-digit virtual card number for the payment amount. The card provider then delivers the card to the payee on behalf of the company, often through a secure email message. The payee then processes the transaction through its bank. Once authorized, the payee’s bank and the company’s bank settle the transaction. The payment posts on the company’s account, and a reconciliation file is automatically sent to the company’s Enterprise Resource Planning system (ERP) to match bills.

Implementing a virtual card program provides companies with other important benefits, including:

Controls and expense management: Virtual cards offer detailed reporting to help companies track and analyze their spending patterns in real time. Companies can set spending limits on each virtual card number to better enforce compliance with policies and remain within budget. Digitization, automation and working capital: Virtual card transactions automatically feed into accounting systems, which can help streamline bookkeeping and reconciliation. Virtual cards can easily integrate with ERPs, providing valuable information for accounting, travel and expense monitoring and procurement. Security: Single-use card numbers limit the exposure of sensitive data compared to card numbers used repeatedly.

Safety and security of virtual card programs

In addition to more effective controls, virtual cards can offer enhanced security features, including:

Single-use authorization: Virtual cards can be authorized for a single transaction up to a preset limit, reducing the exposure of sensitive financial data to breaches, fraud or misuse.  Instant issuance and termination: Virtual cards are generated and issued instantly, and they don’t need to be physically destroyed if the number is compromised. Cards can easily be deactivated through the issuing system. No physical card: Without a physical card in employees’ wallets and purses, bad actors have fewer touchpoints to compromise sensitive card data. Detailed reporting: With real-time payments information, it’s easier to quickly identify and address anomalies or compliance issues.

How to choose a virtual credit card provider

It’s important that businesses find a card provider that offers the features and capabilities to best serve their organizations. There are many considerations when choosing a program provider, such as:

Credit card networks: Depending on the provider and card program, cards may operate through a specific network such as Visa or Mastercard. Businesses should confirm that existing vendors will accept payments through the card’s particular network. Software integrations: Different card providers may offer different integrations with companies’ existing software for accounting and treasury. Ensuring a seamless connection with software can unlock efficiencies in operations. Card controls: Program managers should understand available controls from different providers. It’s important your company finds a provider that offers spend controls that meet your company’s policies and sets employee restrictions on types of spending, spending amount and frequency of use.

We’re here to help

J.P. Morgan’s corporate credit card solutions include virtual cards to allow you to efficiently manage procurement and travel expenses with versatile card controls, online functionality and data integration with your accounting system. 

Our experienced payment specialists can help you design and implement your optimal corporate credit card program . 

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