The virtual cards conundrum

Wayne Lappage loves virtual cards – in principle. “The benefits are huge,” says the global commodity manager for travel and expense at mobility IT systems company Yunex Traffic. “You get enriched data; you’ve got better control in terms of spend because you can put limits on meals at hotels, for example; and it’s much more convenient for our engineers on the road not to have a credit card that can get lost or hit its limit.”

These selling points may explain why use of virtual cards (a unique, digitally generated card number for a single or limited set of transactions), overwhelmingly to pay for hotel stays, continues to grow handsomely.

Virtual card technology provider Conferma claims compound annual growth rate for the market is 15 per cent and for itself is 30 per cent. AirPlus International, which claims to have issued the first virtual cards for corporate travel in 2006, says annual growth has always exceeded 20 per cent other than during Covid.

Yet not long after introducing virtual cards in 2021, Lappage suspended use of them at his company. He is not alone in thinking that, in spite of their manifest advantages, and the technology now hitting its 20^th anniversary, virtual cards remain problematic.

“If you speak to travel management companies, some say 25 per cent of virtual card transactions go wrong,” says Marijke Poppink, owner of the consultancy Poppink TRVL Projects. “We had a call with a bank which told us plastic credit cards are still the best way to pay for hotels. I agree: you don’t have any trouble paying, and it works on every single system. The problem is that people use plastic cards to pay for things they shouldn’t be paying for, so companies are reluctant to give them to employees.”

Discontent with virtual cards boils down to two main concerns: hotels failing to accept the cards as payment when guests check in; and hotels neglecting to issue invoices after guests check out.

The acceptance challenge lies in virtual cards being “cardholder not present” transactions, because there is no cardholder. The transaction is set up at the time of booking and transmitted to the hotel. Originally, transmission was via fax machine, which, astonishingly, still accounts for three per cent of virtual card transactions today, according to Conferma chief product officer Stuart Davenport.

The many ways a message might go astray between a hotel’s fax machine and its front desk are all too easy to imagine, but e-mails, today’s dominant medium, are not always passed on either. Even if the communication does reach the front desk, says Lappage, “the downfall is the human element. A lot of people on the front desk are junior and don’t know what a virtual card is.”

At the time Yunex Traffic suspended virtual card usage, Lappage was seeing around 60 per cent of cards being refused in continental European hotels, and significant non-acceptance in the US, Middle East and Africa too. This was in spite of repeated campaigns by Conferma and others to educate hotels that virtual cards are bona fide payment mechanisms.

But now a newer communications medium may solve this lingering problem. Davenport says 13 per cent of Conferma’s virtual card confirmation messages transmit via an application programming interface (API) into the property management system of the hotel, either directly or via the central reservation system of the managing hotel chain. If the payment is showing in the PMS, the receptionist can see it has been accepted by the hotel.

In an announcement last week, Hilton claimed it was the first global hotel group to adopt the technology, which it said is being integrated for "thousands" of properties globally. With several more chain partnerships imminent, Davenport projects APIs will account for 25 per cent of Conferma transactions by the end of 2025.

Another solution deployed by card providers is an app showing a mock-up of a virtual card which the traveller can brandish on their phone at the front desk.

Opinion divides on how helpful this kind of image is. Lappage has been sufficiently encouraged by pilots to reintroduce virtual cards this year in Europe, though not elsewhere. But Poppink thinks showing a passive image of a card can make things worse.

“Young employees at hotel reception are used to paying instantly with their wallet, and now they get someone showing a credit card on their phone which, when they put it next to the card reader, doesn’t work,” she says. “They are afraid to accept something they don’t believe is an actual payment.”

Poppink adds: “If you could put the virtual card in the wallet where you can use Apple Pay or Google Pay, then you wouldn’t have that problem. That would make it much smoother.”

Both Davenport and AirPlus senior product manager for payments Andreas Diaz say there are good reasons why “active” virtual cards have struggled to appear in mobile wallets alongside digitised versions of plastic cards.

“Technically it’s different,” explains Diaz. “A standard credit card is personalised. You have to apply for the card and run through a Know Your Customer process. There is a security issue of not having someone else putting your card in their wallet or using it on the web.”

Davenport adds that there are complexities around tokenising a virtual card number to turn the transaction effectively into one where the cardholder is present.

“But probably the most important point is that there is a cost to using Apple Pay and Google Pay for the issuer,” Davenport says. “A lot of the card programmes that corporates access have rebates involved. If issuers have given the rebate away they would just be closing down their margins. The cost shouldn’t be underestimated.”

Notwithstanding all the above, recent technical work completed by card schemes Visa and Mastercard in particular means Conferma now has 20 issuers which can put virtual cards in mobile wallets. Fifteen of them have made that breakthrough only in the past 12 months and although some are smaller players in corporate travel payments, Davenport says the bigger names are getting closer to joining the party.

Even if acceptance can be cracked, however, that is not the only problem with virtual cards. “The main challenge we see is invoicing,” says Kathleen Stilmant, director of consulting expertise for the travel management specialist Odyssey by Axys. “The problem is the hotel doesn’t need to issue an invoice to get paid.” Likewise, she adds, travellers don’t need to collect an invoice to support an expense claim because their employer has already paid the hotel bill for them.

Again, Conferma is well aware of this problem, hence it being one of several companies that offers a service that chases hotels for missing or inaccurate invoices – another major challenge. However, Davenport believes the true breakthrough will once again be provided by APIs. In addition to being the route by which a virtual card confirmation can be pumped into the hotel PMS, it is also the route by which the invoice can be extracted automatically from the PMS via a unique e-mail address created for each payment.

The question for travel managers is whether such improvements are enough to overcome their lingering anxieties about virtual cards. Yunex Traffic’s renewed use of them suggests confidence is building but Stilmant says the assessment will be different for every travel manager.

Determining factors include employer attitudes towards plastic corporate cards as an alternative, the volume of contractor and other guest travellers, and the number of payees. “The more hotels you have to pay on a virtual card, the more complicated it is,” says Stilman.

Overall, Stilmant believes “the product is more mature than in the past but still not mature enough.” Diaz acknowledges there is more to be done. “We have to integrate, educate and innovate,” he says.