Cash to Plastic to Virtual: Which Payment Method is Best?

As COVID-19 has forced many businesses to go cashless or to now offer card payments to their customers, particularly in the hospitality and retail sectors, finance teams across the board are looking for new ways to manage individual and company budgets on the go. Whilst reviewing the pros and cons of cash versus corporate cards they have discovered a third option – virtual cards.  Virtual cards can empower and control employee spending and for B2B companies, where few payments are made face-to-face, they could be game-changing.

Let’s take a look at cash, cards and virtual cards to see how they stack up.

The Benefits of Cash Payments

It’s a long time since the days of petty cash tins and salaries in brown envelopes but some large businesses still process cash payments, albeit in ever dwindling numbers. Cash represented 23% of all payments in 2019, down from 48% in 2014.1 Meanwhile, in 2019, card payments accounted for over half (51 per cent) of all payments for the first time, according to a UK Payment Markets report from UK Finance.2  

Despite this, cash still has many benefits for some businesses. Firstly, no training is required to handle cash payments and any mistakes aren’t subject to costly and expensive audits. Secondly, cash payments are not affected by IT failures and power outages. Thirdly, cash involves no investment in technology and there are no annoying banking fees to deal with. Finally aside from the obvious risk of physical theft, you also don’t have to worry about hackers and the release of sensitive information.

The Strengths of Corporate Credit Cards

The main problem with cash is lack of visibility – knowing where and when and by whom money has been spent and feeding that information directly into the expense process. In some cases, employees have the flexibility of managing their own corporate card and handle their payments themselves. Or some companies choose to manage the whole process to take advantage of larger corporate benefits. In either case payments can still be monitored through the expense system so everything is visibility and accountable.

Next you have the security benefits of credit cards. Not holding cash physically means you reduce your risk of robbery and internal theft and you don’t have to train staff to handle and process cash and identify counterfeits. People no longer have to worry about ATMs, visiting banks or handling large amounts of cash. Card payments are faster, resulting in more payments being made in less time and of course online payment systems are protected by passwords and firewalls. Finally, it’s much easier to automate and track sales and record trends in purchases and products when your employees and suppliers pay with credit cards.

But with corporate credit cards, there are still serious issues around security, privacy and the protection of sensitive information.

What Do Virtual Credit Cards Offer That Cash and Cards Don’t?

They’re not plastic for a start, which before we get into the business benefits, already gives them a societal and environmental lead over physical money. We all know the astonishing figures – over 12.7 million tons of plastic dumped into our oceans every year3. When plastic payment cards are typically replaced every two years, going virtual can only help reverse this catastrophic situation. Of course, not making physical cards also provides a huge saving for banks, which can be passed on as a reduction in charges and fees for the customer.

There are a few types of virtual cards with different purposes. In addition to virtual debit cards and prepaid cards, it’s the virtual credit cards (VCCs) that will probably interest finance teams the most.

How Does a Virtual Credit Card Work?

A virtual credit card (VCC) exists electronically as a randomly generated, tokenised 16-digit card number (complete with expiry date, CVC3 or CW code and cardholder’s name) which is linked to an existing credit account. It’s a one-time use only card which comes with a pre-loaded credit limit, valid for a specified time period. It’s managed entirely online, so finance teams can create and activate new accounts instantly and manage and allocate specific budgets.

Why Should My Business Consider VCCs?

Cost savings and visibility of digital spend: The process of issuing multiple physical cards to employees is expensive, which means that often employees share usage of a card. Multiple employees can use different virtual card details, without any cost.

Security: Something that doesn’t exist in a back pocket cannot be stolen or re-used. It’s randomly generated, so cannot be traced back to the original account by hackers and it expires once the maximum amount has been spent.

Ease of use: When used as part of a cloud-based financial payment system, employees access the card through a mobile app, where they can also upload receipts for claims. The finance team manage the cards from a central dashboard and access real-time expense data for more visibility and control.

Immediate Access to Funds: There are no physical or location-based restrictions on issuing virtual cards to employees and employees can use them immediately. Perfect for today’s remote workers!

What’s Holding You Back?

Finance teams and end users need to be able to see and understand the clear cost benefits and rewards of using cash, credit cards or virtual cards. They also need to identify which habits need to change in order for the switch to be successful. For instance, despite the fact most people can now use their mobile devices for payments, only 32% prefer to use digital wallets over cash or cards.4  There’s still a little way to go.

Finally, as we look forward to travelling again, we acknowledge that payment infrastructure differs from country to country. It will take global alignment to overcome this particular obstacle and for now, cash and physical cards reign supreme.

Whilst we can’t ignore the fact that a reduction in cash use disproportionately negatively impacts society’s most vulnerable segments5, and there is still a long way to go to change our habits, the case for reducing cash and physical cards is strong for those businesses that will benefit.

For more on the pluses and minuses on the move to cashless view our infographic 

1 Cash in the Time of Covid, Bank of England, 2020 Q4

2 Cards used for half of payments for first time last year, UK Finance, 2020

3 Plastic waste inputs from land into the ocean, Science, 2015

4 Digital Wallets More Popular Than Debit Cards For Online Payments In UK, The FinTech Times, 2021

5 Poorest to be worst hit by a cashless society, Which?