April 17, 2023 | 5 min read

4 pitfalls to avoid with virtual card programs

Marqeta
So, you’ve decided you want to offer your customers a virtual card? Great! According to Juniper Research, virtual card transaction volumes reached 28 billion in 2022, and they are expected to continue growing. Juniper projects that over the next five years, virtual payments will climb 340% to exceed 121 billion transactions.
While there has never been a better time to consider issuing virtual payment cards, it is important to understand that not all virtual cards are the same. Viewing virtual cards as a cookie-cutter payment solution is one of the main mistakes organizations make when deciding on a new card program.
Before we dive into the traps you need to avoid, let’s make sure you have a clear understanding of the key components and benefits of issuing a virtual card.

Physical vs. virtual payment cards

Physical debit, credit and prepaid cards can all take a virtual form and can be used to make online as well as in-app purchases. You can also make purchases through mobile payment services like Apple Pay, Google Pay and Samsung Pay. If you can do all that with a physical card, why issue a virtual card? 
Here are a few characteristics of virtual cards that can make them more attractive than just a standalone physical card:
  • Security: Virtual cards are tokenized when loaded into a digital wallet.
  • Cost efficient: Virtual cards are inexpensive to create and send to users.
  • Speed: Virtual cards are ready to activate and use in minutes.
  • One and done: You can have the ability to generate single-use card numbers for each purchase that terminates once used.
  • Easy to freeze: If fraud is suspected or the user’s phone is lost or stolen, it is simple to halt activity on the virtual card in question and issue a replacement card.

The evolution of virtual cards

Virtual cards come in two varieties. First, there were traditional virtual cards built on closed, proprietary infrastructure. These were the original virtual cards, first released at the turn of the millennium as many online merchants struggled to combat payment fraud. Later, came modern virtual cards created via open APIs that provide developers access to payment services. 
First-generation virtual cards increased security, but often required lengthy implementations. Over time, card issuers and card issuer processors developed a cookie-cutter approach to implementation that was faster. This solved one problem, but created another. Without the ability to customize virtual cards, card programs had little flexibility and it became difficult to differentiate between different card offerings. 

The modern era of virtual payments

When Marqeta released its issuer processor APIs to developers, it was the dawn of the modern era of virtual cards. It was the one of first time that businesses could launch card programs and customize the payment services with their own enterprise rules and business logic without having to rely on an external party. Differentiation facilitated new, more flexible ways of doing business. Some examples:
  • Online travel aggregators could integrate secure virtual payments to airlines and hotels — and also offer immediate relief to distressed travelers. 
  • Claim processors could combat payee fraud while providing a personalized experience for everything from payouts to warranty holders to payments to third-party auto repair facilities and building contractors. 
  • Accounting departments that previously relied on credit cards to pay bills now had a secure alternative that reduced costs while maximizing money back from interchange fees. 
  • Health insurers could launch innovative programs such as cards that let plan members see any doctor and pay on the spot or the insurers could simply reap the benefits of making virtual payments to medical facilities.
  • Marketplaces can use a virtual card to make B2B payments to pay their suppliers quickly and easily so they can keep their business moving.  
With flexibility came adoption. The amazing results achieved by innovators who leveraged customizable virtual card programs are attracting another wave of companies interested in improving their customers’ experience and increasing operational efficiencies. In fact, Juniper forecasts that the U.S. will account for $71 billion in B2B virtual card revenue by 2027. 

The pitfalls to avoid

Both aspiring and current virtual card program providers would be wise to clearly understand the limitations of off-the-shelf solutions compared to open platforms that support a high degree of customization. Here are the four pitfalls of a one-size-fits-all virtual card program.
  • IT IS WHAT IT IS – Once you implement a plain vanilla program from a closed technology provider, you cannot easily make changes to it at some later date to match the moves of your competitors.
  • CASH FLOW – Cookie-cutter virtual card programs are typically funded through a reserve account or an unsecured line of credit. Many companies prefer Just-in-Time (JIT) Funding, which is only possible with very high-performing modern infrastructure. With the JIT approach, transactions are funded at the point of settlement, and companies keep funds to cover as little as three days worth of transactions in a reserve account.
  • TRANSACTION VISIBILITY – Card program owners who choose to implement one-size-fits-all programs forfeit the ability to gain visibility into transactions as they happen. When cards are processed by customizable platforms, the program owner can see the ISO 8583 messages in real time. This gives the card program owner the ability to influence the transaction according to their own decisioning logic and also to communicate directly with the cardholder as a transaction happens. The card program owner can also append important data, like an invoice number or booking ID, to each transaction, easing reconciliation. 
  • SPEND CONTROLS: STATIC VS. DYNAMIC – Cookie-cutter virtual cards can restrict payment by a particular merchant category code. But organizations launching modern virtual card programs want more control. If you want the ability to dynamically configure detailed controls — not only the merchant category, but the merchant name and ID, dollar amount, frequency of payment, geography, time, date, and more — you’ll want to avoid the one-size-fits-all approach built on older, inflexible infrastructure. 
Recognizing that cost can often be an important consideration, be sure to consider the hidden costs of bringing a very basic payment instrument — a virtual card with a handful of fixed controls — to market. A cheap solution that prevents companies from innovating in response to new market dynamics can be devastating to future growth. Learn more about how to avoid the mistakes of a one-size fits all approach with our ebook or talk with a card program expert.
Tags:
Payment EducationProduct

Keep ReadingSee all related articles

How Accelerated Wage Access Boosts Worker Financial Wellness and Satisfaction
5 min read | January 7, 2025

How Accelerated Wage Access Boosts Worker Financial Wellness and Satisfaction

By enabling workers to access their wages before the next scheduled payday, AWA bridges the gap created by modern pay cycles and brings effort and reward closer together.
How Accelerated Wage Access Boosts Worker Financial Wellness and Satisfaction
We’ve seen the future and it’s powered by Women
5 min read | March 26, 2024

We’ve seen the future and it’s powered by Women

March celebrates women’s achievements, but in payments innovation women are making history all year round.
We’ve seen the future and it’s powered by Women
Nick Holt - People seek efficiency and extra financial tools in 2024
2 min read | February 1, 2024

Nick Holt - People seek efficiency and extra financial tools in 2024

In the fifth and final installment of our “2024 Fintech Outlook” series, we explore the continued growth of BNPL
Nick Holt - People seek efficiency and extra financial tools in 2024

Launch your next payment innovation

Let's talk about your use case and how we can help.