COMMENTARY: How Virtual Card Acceptance Drives Innovation in Small-Business Payments

In 2018, the acceptance of virtual cards, also known as v-cards, by small-to-midsize businesses (SMBs) increased significantly as suppliers embraced the improved security and convenience of this digital payment method over paper checks. Still, making the leap to fully automated payments remained a challenge for most within this market segment.

While fintechs have delivered feature-rich, automated reconciliation and straight-through processing (STP) solutions for large businesses, the needs of SMBs were largely underserved in 2018. This is mostly because many in the industry believe there are few benefits in serving a market that generates smaller and less frequent invoices.

In 2019, market momentum should finally tip in favor of SMBs. As v-cards have become more widely accepted by smaller businesses, fintechs have taken notice. Now innovative banks, processors, and accounts-payable and -receivable solutions providers are positioning themselves to serve this market of 5 million or more potential customers. With the incentives increasing, you can expect fintechs to become more creative and flexible in how they deliver payment-automation tools and systems to meet the unique needs of SMBs in 2019.

As companies work together to close the payment-automation gaps for SMBs, the entire ecosystem will profit from a decreasing dependence on paper-based processes and checks.

Straight-through processing minimizes the time required for payment remittance and settlement. The objective is to streamline payments so that once a transaction is initiated, all activities associated with payment processing are automated from start to finish, with no manual intervention.

By electronically receiving payment information, suppliers can achieve faster and more secure and effective transaction processing. Additionally, errors are reduced as accounts-receivable employees are freed from the manual tasks of entering information and verifying that transactions have fully processed.

For SMBs, in particular, virtual cards offer a number of benefits that make them an ideal complement to the goals of STP. In addition to the speed of payment, virtual cards greatly reduce the risk of fraud and identity theft through their limited, one-time use and by protecting the customer’s personal and financial details.

The industry successfully broadened the reach of payment networks in 2018 by continuing to break down traditional v-card acceptance barriers and by delivering payments via SMBs’ preferred delivery methods, such as Web, interactive voice response phone systems (IVR), email, phone agents, and secure fax.

Even still, it is estimated that 70% or more of payments touched by accounts-payable and -receivable solutions providers, processors, and corporate-payables departments at midsize-to-large banks are not deliverable via virtual cards due to the supplier’s inability to accommodate the manual reconciliation of payment information. This continues the ecosystem’s dependence on the same costly and archaic delivery methods we’ve seen for decades.

Innovation is key to overcoming adoption barriers for SMBs. In recent months, we’ve seen significant progress toward the goal of creating SMB-friendly automated reconciliation and STP solutions. Some of the best innovations offer simplified user interfaces, minimized authentication processes, and the ability to download remittance information to commercially available products like QuickBooks and Xero.

In 2019, it is highly likely that we will see more fintechs collaborating to develop innovative STP solutions for SMBs because it’s ultimately a win-win proposition. Suppliers receiving payments will benefit from the security, efficiency, and cost savings of automation, while those who send and deliver payments will benefit through increased revenue and improved service for their clients as more payments are delivered electronically. Therein lies the golden opportunity to finally make payment automation accessible to SMBs in 2019 and beyond.

—Blair Jeffery is chief operating officer at Noventis Inc., Houston.