Virtual Card Payments Are Picking Up Pace, India To See Strong Growth

Virtual Card Payments Are Picking Up Pace, India To See Strong Growth

by August 5, 2021

The global pandemic forced people, even the less tech-savvy ones, to shift from a physical world to a virtual one. Whether it was shopping or team meetings at work, almost overnight, they were shifted to digital mediums. While everyone hopes that the world will start to normalise soon, thanks to the arrival of vaccines, some of these habits acquired during the pandemic will outlast the virus.

One of these habit is usage of digital payment methods. Money transactions that predominantly took place with cash have been majorly replaced by digital payments methods amid the pandemic. Most digital payment methods have witnessed a shape spike in usage. One of the cashless payment methods picking up pace is the use of virtual cards. According to a study by Juniper Research, the global value of virtual card transactions is expected to reach $6.8 trillion by 2026, jumping from $1.9 trillion in 2021. Virtual cards appeal to the consumer market because of their simplicity and security, the study noted.

Additionally, these digital payment habits adopted by consumers worldwide have also been mirrored by businesses as they look for cashless payment options, not just to provide them to consumers but for use in business transactions as well. The Juniper Research study shows that virtual cards, secure digital cards with randomly generated details, will show robust growth driven by their increasing usage for B2B payments. The research shows that businesses will value the simplicity of virtual cards, compared to the expensive and slow methods like cheque payments, which remains popular in the US.

Virtual card usage in B2B payments is set to rise

According to the study, B2B payments will continue to account for the majority of virtual cards transaction value. By 2026, B2B payments will represent 71% of the total virtual cards transaction value, the study noted.

This is mostly due to the higher transaction value of B2B payments despite their low volume. The study found that B2B payments will represent under 1% of virtual cards transaction volume in 2026. Moreover, this means that vendors need to ensure security features and automation to facilitate these large payments, the study noted.

According to another recent study, digital payment tools like virtual cards provides distinct benefits to both corporate buyers and sellers. Virtual cards can help simplify and optimise B2B payment processes, and help vendors secure payments by generating one-time digital codes for each transaction. Moreover, the study notes that it can also help speed up payments compared to traditional payment methods.

Moreover, it is relatively easy to implement such digital payment solutions into existing accounting or ERP systems, a report by PYMNTS notes. The report also states that using virtual cards can offer better visibility to businesses on their expenditures, allowing them to better handle their spending.

Additionally, businesses can monetize and profit from using virtual cards, the report notes. For instance, businesses are often incentivised to use virtual cards with rebates. Therefore, using virtual cards can potentially lead to thousands of dollars in savings.

Let’s understand this through an example. If a firm earns 0.5% cash back on virtual card payments, it will earn $5,000 in rebate for every $1 million spent.

Most importantly, virtual cards are also more secure than plastic cards since there cannot be any physical card theft. The card data is not stored on the device and mobile phones are used for authentication. Even if a mobile phone is stolen, the pin acts as a safety check while in case of higher transaction amounts, face recognition is used to authenticate the transaction.

Indian subcontinent to witness the strongest growth in virtual card payments

The study by Juniper Research noted that the Indian subcontinent will be the fastest-growing region over the next five years in terms of virtual card usage. Transaction volumes of virtual cards are expected to increase over tenfold by 2026 in the region, according to the study. India, in particular, will present enormous potential for businesses, the study noted. According to a report by the Economic Times, virtual cards can potentially gain between 300 and 500 million Indian customers.

This growth will be driven by the presence of major vendors in the region like the State Bank of India (SBI) and Oxigen Wallet. The high adoption of virtual cards in the mobile wallets sector will drive e-commerce usage. Additionally, the report identified the requirement by India’s central bank, the Reserve Bank of India (RBI), implemented from October 2020 for users to have control over card usage to prevent fraud as a key driver of growth.

According to a report by DQINDIA, virtual cards also have benefits for banks. Virtual cards are a cost-effective way for banks to issue cards and can lead to potential savings between $1.3 million and $2 million for every 1 million virtual cards issued.

Featured image credit: iCard