How Virtual Credit Cards Are Powering New Digital Business Models

ByMargie D. Moore

Jun 17, 2022 , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,


by Keith Axelsen, VP Commercial Merchandise Management at Corpay

The credit card has appear a long way because Forrest and Dorothea Parry invented it in 1960. Forrest was an IBM engineer operating on bar code techniques and optical character viewers when he arrived up with the concept of a plastic card with facts saved on a magnetic tape strip. He tried using gluing the strip to the card, but the glue ruined the info. His wife Dorothea instructed ironing it on. Her thought labored, and the procedure for storing, examining, transmitting and authenticating info that IBM created about the magazine stripe card revolutionized payments.

The times of that easy plastic card are driving us. Most plastic playing cards now use chips, which can store and transmit much more information, and also present the means to program tailor made functions on to the card. In the world of B2B payments, digital playing cards now transmit income and details without the need of plastic at all.

Evolution of Digital Cards.

With the rise of third party APIs and microservices, companies building electronic businesses can combine customized virtual card abilities ideal into their operational processes. Assume of it as a Virtual Card as a Service. I invested 15 yrs helping acquire this technological innovation, starting up in the mid-2000s.

At the time, what we were being building was focused at supporting on the web vacation companies (OTAs) and Journey Administration Businesses (TMCs) improved assistance motels. Throughout the Great Recession, corporate or leisure journey collapsed. With business enterprise slumping, OTAs & TMCs ended up wanting for strategies to enhance performance and lower costs–for by themselves, and for the accommodations they served.

Their organization design, which was somewhat new at the time, was to accumulate and combination knowledge about room inventory and prices from global distribution units (GDSs) these kinds of as Sabre, Amadeus and Travelport. They would then publish the listings in a consumer-friendly platform wherever travelers could e book rooms immediately via an API integration to the GDS, as opposed to acquiring to connect with a bunch of motels on the telephone and book instantly.

In trade for performing as a marketing and advertising and revenue arm for the inns, OTAs would  receive a fee or evaluate a charge on home evenings. For example, let us say you reserve a hotel space as a result of an OTA for $225. The OTA rates your card $225 via their acquirer. They’re the merchant in this circumstance, so on your credit rating card statement you are going to see a cost from the OTA or TMC for $225.

You’re performed with the transaction, but the OTA nevertheless requirements to spend the resort the agreed upon sum. At the time, most OTAs had been performing this section offline. Motels could mail them a detailed bill weekly or every month, and they would manually reconcile that with stock offered and send out a check out. It was expensive and inefficient for all parties.

Then as now, most tourists paid for lodge stays with credit rating playing cards, so hotels’ accounts receivable procedures had been and are built about credit rating playing cards. When you give them a credit score card for a specific hotel place, their AR process maps that card to a lodge stay. And when the transaction is finished, it automatically reconciles these room nights. The again conclusion accounting is very cleanse.

OTAs were being on the lookout to uncover a credit rating card issuer and a credit rating card processor that could use then-nascent virtual card technological know-how to digitize the process and transmit the cash and the pinpointing data to the hotels’ accounts receivable departments in around true time, with out the lodge having to invoice the OTA individually.

We created a tech stack to be in a position to concern distinctive virtual card figures one particular at a time, at the time the traveler booked the space. The $225 resort place sale triggers the OTA to contact a virtual card API and request a virtual card.

The issuer sends the OTA a distinctive 16-digit MasterCard range, with expiration date, CVC and embedded controls that only allow for it to be utilized only for an agreed upon sum in the merchant category code lodges. The OTA then pushes that distinctive card variety to the GDS, which has all the facts linked with your reservation, and they pass the card range and the details to the hotel.

The hotel’s payment method expenses that card the same way they would if the 16 digits were embossed on plastic, and the authorization ask for from the hotel goes back to the credit card processing system for authorization.

The validity of the card number, the out there credit history, and merchant classification code are confirmed. The transaction clears by way of the MasterCard community overnight. The lodge gets the funds immediately into their account. The transaction is posted to the processing platform, and the OTA connected with the scheduling sees the envisioned demand on their invoice.

The Virtual Card Advantage

All of this is laptop or computer to laptop or computer, and it occurs in seconds–much quicker than you can read through this explanation about it.

It didn’t take very long for other industries to have an understanding of the positive aspects of this system–immediate, safe payment with customizable controls to stop fraud simplicity of reconciliation, and demand back again capabilities in the situation of disputes. Coverage promises administration software vendors ended up among the early adopters to integrate virtual cards into their procedures..

Once an vehicle coverage claim is authorized, for case in point, you need a system to spend the automobile fix facility that contracts with the insurance business and affiliate it to the right shopper and work get. Automobile repair service businesses also acquire a ton of payments by credit history card, so digital playing cards in shape correct into their AR workflow.

Truly, any digital company that needs to integrate non-invoiced, level of sale payment abilities into their business enterprise system can take edge of virtual card as a assistance. Examples involve shipping and delivery apps, price management and distressed airline passenger reimbursements.

This is the splendor of APIs and microservices. Builders and product or service leaders can emphasis on the core capabilities of their business enterprise, and connect into as a assistance choices for capabilities these types of as web-site search, location information, and payment connectivity. It does not make perception to develop these issues on their own when they can integrate it as a support from a company that has now perfected it.

In the realm of payments, doing the job with a complete stack digital card as a assistance supplier – 1 who is both equally issuer – can even enhance their own choices with additional capabilities this sort of as phrases and financing.

The humble plastic credit score card with the mag stripe transformed the way we pay back. While people today even now have plastic in their wallets, it is been a prolonged time given that plastic was just a practical way to pay back for one thing. Today’s credit score cards are sophisticated payment instruments that have richer knowledge and offer a broader vary of abilities. In a details pushed world, being capable to integrate all of that into a broad wide range of company processes is at the core of assisting electronic firms scale and thrive.


Keith Axelsen

Keith Axelsen is the VP Commercial Item Management at Corpay, a FLEETCOR Company where by he manages B2B items that offer firms with a far better way to pay back, by replacing outdated payment solutions these as checks and dollars. He has 20 decades of knowledge in the company payments and professional card market and has held managerial roles at businesses these as Travelliance, Company Paying Innovations and WEX.



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