The Risk of In-House Virtual Card Programs

Virtual cards carry a tremendous number of benefits. From convenience and security to cash-back rewards, it’s clear why Juniper Research expects virtual card use to grow 355% by 2028.

However, different virtual credit card programs vary dramatically in terms of reliability and how amenable they are to rigorous accounting and reporting. Here, we’ll reveal why in-house virtual credit card programs are inherently risky in ways that are non-issues with a dedicated and experienced third-party provider.

What Are Virtual Credit Cards

Virtual credit cards are purely digital, temporary transaction tools. They use preloaded funds, much like a gift card, and apply a unique 16-digit number to each transaction. Used wisely, and virtual credit cards become a sophisticated means of preventing unauthorized charges and preventing fraud.

They also carry several other advantages over standard credit cards (and ACH), most principally:

  • Faster payment timing
  • Non-association with bank accounts
  • Improved payment tracking, budget management, and spending controls
  • Automation options, both for the payment itself and reporting functions
  • Ability to coordinate payments with fulfillment of terms
  • Cash back programs that can offset AP department overhead

Of course, achieving all these benefits isn’t a given. Like any financial tool, securing the greatest value with the lowest risk depends on choosing the most reputable provider.

In-House vs Third-Party Virtual Card Providers

Unlike in-house ACH transactions, an in-house virtual credit card provider doesn’t necessarily have access to bank account and routing numbers – so what’s the problem?

Unauthorized use is still an issue with in-house virtual cards, and perhaps even more so. That’s because it’s much easier for those running an in-house program to circumvent internal checks and balances, which they likely know very well.

Third-party virtual credit card providers have the bare minimum info needed to issue virtual credit cards, and a given payment can be wholly unassociated with any other virtual card. Further, an experienced and well-resourced third party is much more capable of employing enterprise-grade security than an in-house alternative.

What Can Go Wrong With In-House Virtual Card Payments?

Keeping all services under the same roof sounds good in terms of efficiency, but it’s not so for financial matters. That’s because fully in-house services can easily defy important internal control mechanisms, where essential duties are divided among several people to prevent abuse. It’s much like government separation of powers, but for accountants.

Trust is paramount, but control over virtual card payments is best when not granted to those already handling a large share of:

  • Issuing unlimited virtual cards
  • Budgeting card payments
  • Making those payments
  • Accounting for each transaction
  • Reconciling transactions

In fact, that’s exactly how a non-accountant defrauded the Jacksonville Jaguars for $22.2 million. At first, their fully in-house virtual credit card and record keeping system (a spreadsheet) seemed like a way to cut through red tape and save on costs. Yet in the end, it gave a single employee the means of evading proper review by accountants, who couldn’t maintain transparency over business transactions in real-time.

Keeping Trust Where it Belongs, With Paymerang

In accounting, keeping all functions tooclose to home can easily create conflict. Even if a function is perfectly within your staff’s skill set, they still must choose payment/vendor management practices that keep only the right eyes on the right data at a given time.

Virtual credit cards are one big step in that direction, but by minimizing the risk of in-house conflicts of interest, only a third party can treat your data with the discretion it requires. Paymerang is constantly refining our virtual card services to resist abuse and user error by design – not just policy. Connect with our experienced FinTech experts, and find out how Paymerang can keep your virtual card payments and reconciliation practices secure.

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Nasser Chanda

Nasser Chanda

As CEO, Nasser is responsible for ensuring that our customers receive the world-class service they have come to expect, day in and day out, from our incredibly talented and dedicated associates. Nasser also oversees the strategy and direction of the company, ensuring that Paymerang continues to lead the industry in revolutionizing B2B payments.