23 October 2014

Matthew Dragiff

Matthew Dragiff - SunGard AvantGard Payment Services

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Payments strategies 2015-2020-2030

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Virtual Cards Part II:How Companies Use Them to Earn Revenue

27 April 2012  |  2589 views  |  1

In Part I of my virtual card blog series I described the nature of a virtual card program. In part II, I will describe how corporations can use virtual card programs to help generate revenue.

More and more corporations are seeing the benefits of migrating paper checks to electronic and now specifically to virtual card programs. 

Virtual card technology generates single-use unique card numbers with set credit limits based on the company’s payment instructions. This approach safeguards each virtual card against unauthorized use and simplifies reconciliation. A company can earn rebates from check disbursements that are migrated to card payments based on a defined percentage of their total monthly spend.

For example, a corporation with 5000 checks per month at a cost of $1.50 is spending $90,000 per year just to pay invoices by check. By migrating 25% of those 5000 checks with an average check value of $1100 to a virtual card program that has an average rebate of $13.75, a corporation can earn $206,256 year from the rebates – turning the finance department into a revenue generator.  Additionally, by migrating 50% of those 5000 checks to ACH at $.50 per payment, a corporation could save approximately $30,000 per year.

One of the most significant barriers to migrating to a virtual card program however is vendor enrollment.  Having a vendor enrollment strategy in place is key to the success of a virtual card program whether it is in-house or outsourced.  Companies that I have worked with that have migrated to virtual card programs are often surprised at the adoption rate but often pleased as they begin to negate costs and earn revenue.

I often get asked why would vendors accept card payments?  Vendors are actually willing to accept card payments (not a majority, but enough to generate significant rebate revenue).  Some are already accepting card payments from other customers.  Some highly value the relationship that they have with specific customers and will accept card payments to maintain that business.  Others may have enough margin built into their prices that they can absorb the merchant fees.  Additionally, payers can incent their vendors to accept card payments, perhaps by offering different payment terms or by concentrating more of their spend with a vendor if that vendor will agree to accept card payments.

Stay tuned for Virtual Card Programs Part III where I will describe how virtual card programs differ from other card programs.

Are you currently using virtual card programs or thinking of migrating your vendors? I’d like to hear from you.

TagsCardsPayments

Comments: (1)

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 30 April, 2012, 09:34

SQUARE disrupted the card acceptance space by obviating the need for businesses to have a merchant account. Although there could be a difference between a typical SQUARE merchant and the "vendor" mentioned in your context, it seems that getting a merchant account is not easy. This could prove to be the biggest hurdle in the way of vendor enrolment to virtual card programs. (Assuming, of course, that a merchant account is required to accept virtual card payments). Furtheremore, this challenge lies outside the purview of the payer and the vendor. Any light you can throw on how it can be surmounted it will help.

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Matthew Dragiff

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Vice President Product Management

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SunGard AvantGard Payment Services

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