Spending on virtual credit cards (VCCs) has surpassed corporate card expenditure for the first time in 2019, according to the Research and Markets business credit card report. Additionally, a new study by Juniper Research estimated that the global value of virtual card transactions will reach $6.8 trillion in 2026, representing a 370% increase from 2021. Businesses will account for 71% of total VCC transaction value, as preference for the convenience and security of virtual cards over costly and time-consuming methods grows over time. Is it necessary for your company to use virtual credit cards (VCCs)? What should you know to help your company avoid fraud and take advantage of VCC benefits? In this article, we’ll address those concerns by presenting the features of a VCC and explaining how it varies from a typical corporate credit card. What is a virtual card? Unlike a typical credit card, a virtual credit card is not a physical object. It’s a temporary and random set of 16 digits. It’s typically used to buy a single item using your smartphone or PC, and it’s generated online within seconds. Each time you use it, the disposable number changes, and it expires when it is no longer in use. A virtual credit card connects to but does not replace, your actual credit card account, so the charge you make on a VCC still pops up on your regular credit card statement.   What does it look like & how is it generated? The electronic image of a VCC resembles that of a regular credit card, but it contains a number string that looks like this: xxx xxx xxx xxx 1234. The “x’s” stand for a random collection of numbers that hide your actual credit card number from fraudsters. The cards also feature a three-digit card verification number and an expiration date. Users may be able to get a virtual card number through their online account management site, depending on their bank or card issuer. They can set spending limits on each virtual card number they get and set unique expiration dates (typically no more than 60 days) using their current account to protect themselves from abuse, fraud, and overspending. Virtual credit cards are offered by a variety of major financial institutions, including Visa, American Express, Citibank, Capital One, and MasterCard (which operates its own virtual credit card service). If you have a credit card, you may already have access to a virtual card number. To find out, simply log into your online bank or card account and search for “Virtual Card Number” or “Virtual Account Number.”   Can you get a virtual credit card with no deposit? As previously explained, a virtual credit card number is connected to an existing account with cash or a credit account with a line of credit. Users are given the option to create the virtual credit card as a single-use or multi-use card, with an expiration date of their choosing. They are also given the option to place a spending limit on the card, which allows them to access cash from their current account in a more structured and controlled manner.   What’s the difference between digital wallets and virtual credit cards? A digital wallet works similarly to a virtual card, with a few noteworthy distinctions. Apple Pay and Google Pay, for example, store a digital version of your physical credit or debit card, including full card details. Digital wallets are considered a safe payment method since most digital wallets generate a temporary card number, similar to a virtual card, guaranteeing that your actual card number is never shown to a retailer. However, digital wallets are not accepted everywhere. Unlike virtual cards, which may be used for any online purchase that accepts credit cards, digital wallets can only be used at participating stores, whether online or in-store. VCC advantages Security: Global credit card fraud losses totaled $28.58 billion in 2020, with projections to reach $49.32 billion by 2030. Given the magnitude of these numbers, security should be a priority for all companies. Virtual credit cards help prevent fraudsters from stealing your company’s credit card information or hacking into your online transactions. Why? because VCC numbers are meaningless to fraudsters. The growth in corporate credit card fraud, as previously mentioned, is a driving reason for growth in the VCC industry. A JPMorgan survey of over 8,000 professionals found that VCCs were only targeted by scammers in 3% of the cases, while corporate credit cards were attacked in 34% of the cases. Low fees and costs: Most virtual card issuers don't charge customers anything more for the service, and it allows them to use a new asset without having to open a new account. Seamless Payment Method: There are various levels to the exceedingly complicated structure of domestic business payments. The sheer number of payments made and received by each company is the first layer of complication. According to Juniper Research, the average North American company makes 2,275 domestic payments in a single year. With so many small firms in North America, the average number of payments made by major corporations will exceed 100,000 every year, which works out to more than 270 payments every day. Given a large number of payments, the effort of handling these payments is massive, and the number of channels involved adds to the complexity. There’s also the issue of payment terms and deadlines, which differ from one vendor to the next. Other factors, such as invoice factoring or supply chain financing, may also further complicate the process. Fundamentally, this means that controlling payment flows is a difficult problem that demands a significant amount of resources. Virtual cards often allow additional transaction data, such as payee reference numbers, transaction category data, etc., to be linked to records, which is a crucial advantage for business operations. This speeds up payment reconciliation for both A/P and A/R procedures. Expense Management: Businesses can use VCCs to get more control over their employees’ expenditures. When an employee travels on business, they can estimate the cost of the trip and establish a VCC spending limit accordingly. For example, if the estimated amount is $1,000, the employee can request a $1,000 VCC from the corporation. By establishing spending limits on employees, a VCC reduces the financial risk to the company.   VCC adoption challenges Like other innovative technological applications, virtual credit cards present their own set of challenges: Vendor adaptation: The fact that not all vendors are ready to take payments via virtual methods is a significant barrier. This problem occurs most frequently when purchasing goods or services from businesses that demand a physical card as proof of identity to prevent fraud, such as hotels that require visitors to provide a physical card at check-in or fax a credit card authorization form to confirm their reservation. However, as the payment industry evolves, many suppliers are making greater efforts to handle virtual payments, and major credit card networks have begun to offer mobile wallets for corporate use, implying that virtual credit cards will combine with mobile wallets in the not-too-distant future. Returns & Refunds: This point is not particularly limited to companies, as individual consumers also face the same issue. With virtual credit cards, returning products ordered online to a real store might be difficult. This is because some retailers ask customers to swipe or enter the card used to make the transaction in order to process any refund. This certainly isn’t possible with a virtual credit card. In some situations, customers may have to accept store credit rather than a refund on their credit card. Recurring payments: recurring payments such as subscriptions may be affected by virtual credit cards with short expiration dates. To keep the subscription active, users have to update the virtual credit card information each time it expires. If they forget, the subscription may be suspended, requiring customers to repeat the process with a new virtual credit card number. However, some virtual credit cards could be easily set up with a specific spending limit and the preferred recurrence (for example, monthly or quarterly). Company migration: For some businesses, implementing virtual credit cards might be a difficult task. Companies that sign up directly with a payment partner will work with them to develop this payment mechanism on the technical side. Employee training following the rollout is another challenge for some organizations, especially those in industries that have long depended on more traditional payment methods. To sum up, virtual cards are gaining in popularity and are an excellent way to make safe payments. They are especially useful in business settings where a large number of employees require company cards, which are more expensive to operate with physical equipment and may be more vulnerable to manipulation and fraud. Virtual card numbers are one option for companies to manage finances and transactions with increased spending controls and reporting features while eliminating security concerns on both sides of a transaction as privacy becomes more essential. However, like any new technology, virtual credit cards have their own set of obstacles that might hinder some companies from using them based on their payment needs.   Author: Mariam Elmaghraby Sources https://www.juniperresearch.com/press/virtual-card-transaction-values-to-increase?ch=370% https://www.juniperresearch.com/researchstore/fintech-payments/virtual-cards-market-research-report https://www.paymentsdive.com/news/card-industry-faces-400b-in-fraud-losses-over-next-decade-nilson-says/611521/#:~:text=Fighting%20fraud&text=Global%20card%20fraud%20losses%20of,2019%2C%20per%20the%20Nilson%20report. https://cdn2.hubspot.net/hubfs/418036/WP_Sage_AP_Automation_virtualcreditcard-jul2017.pdf https://www.forbes.com/advisor/credit-cards/virtual-credit-card-numbers-guide/ https://www.axerve.com/en/learn/insights/virtual-credit-cards https://www.creditkarma.com/credit-cards/i/virtual-credit-card https://www.avidxchange.com/blog/virtual-credit-cards-what-they-are-why-theyre-so-popular/ https://www.cnet.com/personal-finance/credit-cards/what-is-a-virtual-card-and-how-do-you-use-it/

US bank branches could become extinct by 2034 if current branch closure plans don’t change, according to a study published by Self Financial. This past decade has seen the progressive closure of physical banks and the global pandemic seems to have accelerated this trend worldwide. In the UK, over 4,300 branches closed since 2015, representing a 44% decrease. Northern European and Baltic countries recorded some of the biggest declines in the number of bank branches per 100,000 adults in the last few years. A well-known example for this is Danske bank which decided to close down all banking activities in Estonia, Latvia, Lithuania, and Russia; in addition to closing 50 branches in Northern Ireland. The United States had 83,060 branches in 2012, but just 77,647 in 2018 – a loss of 5,413 branches, or 6.5%, according to Self's figures.  Are these closures really significant, and who would get hit the hardest if physical banking were to become extinct?    Branch closures worldwide If major banks like Citigroup Inc. and Bank of America Corp. were greatly affected during the 2008 crisis and closed/sold more than 1,500 branches since 2009, regional banks have only seen an impact on their physical footprint more recently with the rise of internet banking and fewer people visiting branches. Examples of regional banks include Capital One Financial Corp. slashing 32% of its branches between mid-2012 and mid-2017, SunTrust Banks Inc. 22% and Regions Financial Corp. 12%. On the other hand, major banks reported similar numbers such as Citigroup closing 32% and BOA 17% during the same period even though they’ve had a head start over regional banks for several years. During the pandemic, Banco Sabadell was the first to act in Spain, announcing the loss of 1,800 jobs on the same day that its merger discussions with BBVA failed in November 2020. Later, Santander announced the loss of 3,572 employees and the closure of 1,033 branches in Spain by December 2020. Also, BBVA reportedly planned 3,798 layoffs and the closure of 530 locations. A one-day strike by employees in June caused them to amend their decision to only 2,935 layoffs and 480 branch closures. In April, CaixaBank planned 8,291 job layoffs and 1,534 branch closures; however, after discussions with unions, the bank agreed to 6,452 job layoffs and the closure of 1,500 branches. Commerzbank, Germany's second-biggest bank by assets, will exit Hong Kong, Luxembourg, and Hungary, as well as close branches in Bratislava, Slovakia, Barcelona, and Brussels. According to Bloomberg, the number of global correspondent banks would be reduced from 1,600 to around 1,300 with more than 80% of headcount reductions set to be completed by the end of 2023. Deutsche Bank will close 150 branches this year, with a further 50 Postbank branches going in 2022, costing more than 1,200 jobs. Deutsche Bank’s branch closures are part of a plan announced in 2019 to cut 18,000 positions, or one-fifth of the company's worldwide staff, and spend €13 billion on new technologies over the following four years.   Reasons behind branch closures . Banks are shutting branches to save costs Opening a new branch costs a bank millions of dollars, on average $2-4 million. Then they pay $200,000-400,000 each year to run it, especially in high-cost cities. Therefore, it might take years for a branch to achieve its potential profit. In the UK for example, each client visiting a branch on a regular basis may cost banks up to £118,000 per year in some branches. Also, according to a report published by Bain & Co. in 2016, a mobile banking transaction costs around 10 cents, whereas connecting with a bank teller costs about $4. Bain also stated that the 25 largest U.S. banks could save more than $11 billion a year if they decreased their branch count per capita. Commerzbank is planning on saving €1.4 billion by 2024 with the closure of 340 branches and the elimination of about 10,000 jobs, according to their "Strategy 2024”. . Customers’ increasing reliance on online banking As reported by the American Bankers Association (ABA), 71% of Americans prefer online or mobile banking business to brick and mortar. Also, 39% of customers now report using mobile apps as the primary source for banking, a 3% increase from pre-COVID levels. BBVA reported a 48% drop in in-person transactions and a 115% increase in the use of its digital channels in the first half of 2021. Also, according to YouGov, most bank customers (up to 84%) use internet banking monthly in the UK, while only 25% still visit branches once a month.    Disadvantages of branch closures However, banks should also consider that they will alienate some customers when they shut down physical locations, especially since many customers face difficulties using technologies like mobile and online banking.  . Disabled and elderly customers suffering Statistics show that physical bank branches are mostly visited by older, retired people. Almost a third (32%) are over the age of 65, and 33% are retired. Their seeming inability to use digital banking is not due to a lack of access as nearly all (93%) own a smartphone, and 75% own a laptop. It appears to be due to either a lack of understanding or a lack of faith in the technology. Additionally, a survey conducted by consumer group “Which?” stated that 41% of disabled consumers said the closures had a negative impact on their ability to access bank services, with more than half (54%) of NatWest customers and nearly 58% of Barclays customers agreeing. Additionally, one in five also struggled with the security measures needed which is a serious issue for those with memory problems, as 30% of them indicated security measures were a difficulty for them. According to the same study, even branches that remain open lack complete accessibility for customers with disabilities, specifically, 34% mentioned they found it difficult to use branch services in the UK.  . Cost of closures Branch closures are likely to lose customers for banks, not only employees. According to the Bain & Co. report, the likelihood of a U.S. consumer switching banks rises 14% when that consumer is affected by a branch closure. When a branch closes, the nearest alternative branches are typically much farther away. Hence, customers who can't or don't want to drive must rely on local transport services in rural areas. Also, when banks decide on the closure of a branch they also decide for the reduction of the workforce, which isn’t as cheap as it sounds. Studies show that Commerzbank’s 10,000 job cuts which are caused by branch closures will cost the bank around 160,000 euros each in severance. In conclusion, branch closures might be a very suitable solution for banks to reduce costs and impress shareholders. However, they should keep in mind that some customers (even if just a minority) still rely on physical branches and will end up with no access to banking services if banks did not put their vulnerable state into consideration.   Mariam Elmaghraby – Research Analyst Sources: https://www.self.inc/info/the-death-of-the-banks/#historical-banking-trends https://www.thebanker.com/Editor-s-Blog/Is-this-the-beginning-of-the-end-for-bank-branches https://danskebank.com/news-and-insights/news-archive/company-announcements/2019/ca19022019 https://www.irishnews.com/business/2021/07/10/news/danske-bank-set-to-close-50th-branch-since-2010-this-year-2382147/ https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/spanish-banks-look-to-leaner-future-as-cost-cutting-plans-survive-union-pushback-66008050 https://www.macaubusiness.com/spanish-bank-sabadell-to-cut-1800-jobs-union/?__cf_chl_managed_tk__=pmd_GW9QU41YJKTOMT9fAedi9eb6duXtDmztKulhCy8AQH8-1633335135-0-gqNtZGzNAyWjcnBszRS9 https://inews.co.uk/inews-lifestyle/money/saving-and-banking/banks-failing-disabled-customers-amid-branch-closures-1121783 https://citymonitor.ai/economy/bank-branches-are-closing-and-theyre-leaving-the-most-disadvantaged-areas-behind https://www.thetimes.co.uk/article/why-banks-are-closing-their-high-street-branches-zzkh2hdc0 https://yougov.co.uk/topics/finance/articles-reports/2019/02/04/how-much-will-closure-bank-branches-affect-custome https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/commerzbank-to-trim-global-ops-shutter-branches-8211-bloomberg-62916382 https://thefinancialbrand.com/71090/branch-networks-retail-experience-mobile-first-banking/ https://www.finextra.com/newsarticle/37958/deutsche-bank-to-close-branches-move-to-hybrid-working-model https://www.bankingdive.com/news/challenger-branches-extinct-by-2034/596885/ https://www.wsj.com/articles/banks-double-down-on-branch-cutbacks-1517826601 https://www.which.co.uk/money/banking/switching-your-bank/bank-branch-closures-is-your-local-bank-closing-a28n44c8z0h5 https://arca.com/resources/blog/cutting-branches-to-cut-costs-does-it-work https://www.newsobserver.com/news/business/article119764788.html https://thefinancialbrand.com/107582/garret-online-mobile-banking-adoption-rates-covid/ https://www.yourmoney.com/saving-banking/disabled-customers-suffer-as-bank-branches-close/ https://www.bloombergquint.com/onweb/deutsche-bank-targets-450-jobs-in-first-round-of-branch-closures https://ncrc.org/research-brief-bank-branch-closure-update-2017-2020/