Amex recently announced that it’s bringing increased access to virtual cards for small businesses in the U.S. by collaborating with Extend, an NYC-based payments firm. Using the new service, any company with an eligible American Express Business Card can create virtual cards through the Extend app or website with their existing American Express account. Amex claims the process takes as little as five minutes, with no additional tech build needed, and no extra costs to card members.
Virtual cards offer a number of advantages over traditional debit or credit cards in the form of greater security, transparency, and efficiency. Amex’s SMB customers can use them to pay employees, vendors, and contractors without giving away their primary business card numbers, and gain more control over their expenses by setting spending limits and expiration dates. They can also use Extend’s APIs to develop custom payment solutions and create specific cards for different expenses, making it easier to categorize and track their overall spending.
Additionally, virtual cards bring more efficiency to the accounts payable process. They allow all transactions to be electronically tagged with enriched data, which helps businesses with accounting processes such as automatic reconciliation. Amex and Extend also plan to offer additional features in the future, including the ability to add virtual cards to mobile wallets for in-store purchases.
Founded in 2017, Extend is a digital payments platform that specializes in virtual card solutions. The firm has raised $14 million to date, including an $11 million Series A round co-led by Point72 and FinTech Collective in 2019. Extend also launched virtual card solutions for Mastercard in late 2020 and City National Bank at the beginning of this year.
Throughout the pandemic, one of the biggest challenges for SMBs has been managing their cash flow: 6 out of 10 small business owners have reported cash flow problems during the pandemic. SMBs have now started turning to flexible payment options like virtual cards to help them digitize their payments and improve cash flow. 39% of U.S. businesses expect to increase their use of virtual cards over the next 12 months, according to the Global Business Spend Indicator survey by Amex.
“The use of virtual cards has really ramped up since the start of the pandemic, as more and more U.S. companies are embracing the ‘work from anywhere’ lifestyle,” said Dean Henry, executive vice president of global commercial services at American Express. “As a response to this growing demand, our virtual card solution with Extend gives our small business customers enhanced flexibility and control across their day-to-day business spending, including for B2B purchases and allowing their employees to pay for various expenses.”
Gunita Bindra, vice president of product management and partnerships at Bottomline Technologies, points out that security and fraud prevention in payments have become increasingly important for small businesses amid escalating fraud attempts. According to Bottomline’s 2021 B2B Payments Survey, 52% of businesses reported heightened security concerns compared to last year, and 49% reported that there were serious fraud attempts against them.
Bindra says virtual cards provide SMBs with a higher level of security and control over their expenses, which can help reduce the likelihood of fraud and other potential vulnerabilities. “As a small business, you want to spend your limited resources on building your product, rather than worrying about security threats and constantly following up with suppliers and contractors to ensure that they’ve received their payments,” said Bindra. “Virtual cards enable secure payments and free up resources for businesses to focus on other important areas, such as creative strategy.”
The Covid-driven surge in the demand for virtual cards is not showing any signs of slowing down, even after the pandemic is over. According to a report by Juniper Research, the global value of virtual card transactions – currently at $1.9 trillion – is projected to reach $6.8 trillion in the next 5 years. This growth will largely be driven by B2B payments, which will make up around 70% of the total value of virtual card transactions by 2026.
“As history has shown, once a true innovation demonstrates its value, it’s hard to turn back,” said Andrew Jamison, co-founder and CEO of Extend. “Even when the pandemic is behind us, it’s unlikely people will want to return to cutting paper checks when the alternative is much more seamless and efficient.”
Looking ahead, Jamison sees virtual cards becoming an integrated feature in most if not all debit and credit cards. At the same time, he believes that while legacy payment methods won’t be as big as they once were, it’s not the end of the line for the plastic card yet.
“As virtual cards become more advanced, user-friendly and mobile wallet ready, there may be less of a need for plastic, but I don’t see physical cards becoming totally obsolete just yet. They will remain important in the same way that door codes and key cards have made accessing a building easier but the fall back option of a lock and key is still necessary.”