In the dynamic environment of business travel, what place will the virtual card hold in the future?
Traditional payment solutions such as the individual corporate card and lodge card continue to dominate payment methods in business travel.
The individual corporate card is the business traveller’s most common payment method. With the experience of the card at the point of sale being identical to a consumer credit card, it is familiar to the traveller and simple. Furthermore, the individual corporate card is flexible with its capabilities in making both pre-travel bookings and on-the-go purchases.
Meanwhile the lodge card - as hinted by the name - is ‘lodged’ at a Travel Management Company (TMC) where travel bookings can be made. Because it is hosted centrally at the TMC, the lodge card provides the client with a holistic view of all centrally booked travel and expenses. In addition, lodge cards provide enhanced data to the client which helps them allocate business travel expenses back to the right departments of a firm.
The Industry Trend
Over the years, the way travellers use individual corporate and lodge cards has evolved. Typically, we see organizations using the lodge card for scheduled air travel whilst individual corporate cards are used for all other on-the-go business travel expenses. Though individual corporate cards and the lodge card are popular settlement options, clients are demanding more and more from card providers. In particular, reconciliation and control are key focus points.
Understandably, lodge card clients are facing challenges when looking to expand business travel bookings to hotels, car hire, low cost airlines and rail, making data for reconciliation purposes limited in these areas. Meanwhile, the individual corporate card experience may be hampered because of its dependence on timely expense report submissions by travellers.
Optimizing spend visibility and control has also been increasingly on clients’ radars because of the pressing issues of card misuse and travel policy compliance. Clients expect tighter controls from the individual corporate card so they can comply with their organization’s policy.
Evolution of Virtual Card
These challenges and expectations from clients have shifted attention to the virtual card. Although they’ve been in circulation for the last decade, the industry has recently started wholeheartedly adopting and developing them for clients. Technological progress along with increased recognition from corporations and banks mean that use of virtual cards is growing in the business travel industry. Bank of America Merrill Lynch (BofAML) for example, has recently launched the award-winning BofAML Travel Pro.
How It Works
From a client’s perspective the virtual card is user-friendly; no IT set-up is required and bookings are processed no differently than they are today. During a booking, a 16-digit virtual card number is requested from the card provider via an encrypted XML message protocol. The unique virtual card number is then returned to the TMC for the transaction to be completed while enhanced travel data is captured up front by the payment system. All of this is done in a matter of seconds, and the upfront data captured helps with seamless reconciliation, with the highest level of visibility.
An example of a virtual card being implemented to support an organization’s travel requirements is BofAML’s Travel Pro. Here an encrypted virtual card account number is assigned to a transaction. It is then submitted to the airline, hotel, rail or car rental company (whether this is through a self booking tool or a TMC). The enhanced data captured (cost centre, check in/out date, employee ID, other client defined fields) as part of the virtual card account request is matched with the transaction and presented back to the client within the BofAML Global Reporting and Account Management tool.
Benefits of Virtual Card Payments
With a unique 16-digit virtual card number being generated for each transaction, and without the need for plastic, there are a plethora of benefits.
Through one central travel payment process, virtual cards can make bookings for car hire, accommodation, rail tickets, and all air travel (including low cost air). This provides a holistic booking approach in what travel mode can be booked by the organization. As we mentioned in last quarter’s Business Travel IQ “Five Trends Shaping Business Travel”, companies are increasingly relying on rail and car hire to get around the challenges associated with air travel. Virtual cards give the flexibility and completeness that can accommodate a business traveller’s increasingly multi-channel approach.
Companies can capture more detailed data, which in turn gives them increased clarity about their finances. This makes centralizing travel spend much easier allowing firms to drive cost savings and improve reconciliation. Additionally, the centralization means travellers do not need to spend time manually reconciling their individual travel expenses.
Finally and perhaps most importantly, is control. With a single card account number for each transaction, usage parameters can be customised to help make certain there is appropriate spend amongst employees. Also, since each 16-digit virtual card number is used for a specific purpose and for a specific transaction, opportunity for fraud is significantly reduced.
The Future of Virtual Cards in Business Travel
Given the increase in purposes of virtual card, will we see an increase in uptake from hotels and other travel companies? Already, we have seen an increase in acceptance which is only going to grow even more. Several organizations have opted to incorporate virtual cards as a payment method in order to enhance their business travel experience, taking advantage of the enhanced data these cards provide to facilitate easier reconciliation of business travel spend. Card providers like BofAML continue to invest in innovation and geographic expansion of their card offerings to meet the evolving needs of their clients.
The benefits of virtual card are invaluable and evident; completeness, clarity and control. Travel managers should consider how to strategically include virtual card in their travel and procurement systems to best suit their business needs.
- Individual card and lodge cards dominate payment methods in business travel
- Technological progress and increased recognition from the industry has led to the increased use of virtual cards in the business travel industry
- Virtual cards offer benefits such as a holistic booking approach, detailed data and increased control over spend