Digitalization, Innovation & Remaining Competitive: The Time for Virtual Payment Cards Has Arrived

Gregg Bennett, EVP, Horizon Bank

(Reprinted with permission from Payments Journal. Original article published on September 24, 2021 and can be viewed here.)

It has been said that financial institutions are losing market share one transaction at a time. Every time an individual swipes a credit card not from their bank or credit union or sends a P2P payment with Venmo or Cash App, financial institutions are losing their footing.

Recently, in wake of the COVID-19 pandemic, there has been a shift of community financial institutions’ (CFIs) customer base to the mega-banks, because of the digital offerings they provide. Although there is no magic solution to this ever-present challenge, there are steps community financial institutions (CFIs) can take to blunt and potentially reverse trends that threaten their customer relationships.

To retain and attract new customers, many larger banks have launched new digital products – including virtual payment cards – a development not yet widely embraced by community banks or credit unions. One needs to look no further than CapitalOne, Wells Fargo, Chase, or Citi to see examples of this.

The Shifting Sands of Loyalty

For CFIs, attempting to maintain primary financial institution status with their existing customers becomes more challenging each year. Bankers are always trying to solve the puzzle of getting new customers while keeping the ones they already have.

Why? According to statistics included in a 2020 Raddon Research report, “in 2013, 44% of consumers reported that their primary institution was a credit union or a community bank. But in 2020, the situation has more than flipped. Six large banks — Bank of America, Chase, PNC, Truist, U.S. Bank and Wells Fargo — control a total of 59% of primary financial institution status. Credit unions account for only 12% and community banks account for only 12%.”

Virtual Cards to the Rescue

How do CFIs remain competitive in today’s challenging environment? “Virtual” payment cards offer one proven solution. Virtual payment cards are issued with a unique number that links to an existing checking account, line of credit, or credit card account. They can be created for recurring or one-time use and are compatible with all the popular digital wallets, such as Apple Pay, Google Pay, and Samsung Pay.

Virtual cards can be created by account holders and issued instantly through their bank or credit union on either their desktop or mobile app. Use of the card is immediate, and the card can be managed through enhanced security settings, including an immediate card off option, controls for specific merchants, merchant categories, geographical areas, time-of-day schedules and spending amounts.

Instant-issue evolves into self-issue, convenience, and control

Remember when account holders had to wait seven to 10 days for their card to come in the mail? Now, virtual cards allow for instant self-issuance. True self-issue virtual payment cards are created on-demand by the account holder without a branch visit and can be used immediately. Self-issuance gives account holders the ultimate in convenience and control.

In addition, the “instant-issue” nature of virtual cards allows them to outperform physical cards in several ways, all of which benefit account holders and CFIs alike.

Virtual cards can deliver increased interchange revenue

As many people know all-too-well, if a physical card is lost or stolen, receiving a replacement by mail can take between seven to 10 days. Once the new card arrives, data shows only a percentage of cards are activated immediately. This results in reduced customer usage and lost income to the CFI by way of decreased interchange income.

Additionally, since creating a virtual card is easy and the number of virtual cards an account holder can self-issue is unlimited, FIs can expect to see increased overall card usage from account holders creating “purpose-driven cards.” For example, an account holder can generate a unique virtual card for each vendor they pay online, such as Netflix or a gym membership. An account holder can also create a separate card for Amazon purchases, a general-purpose online shopping card, travel card, or one to place in their favorite digital wallet.

Users can even create one-time use cards. Allowing account holders to self-issue virtual cards for any purpose they deem appropriate can empower CFIs to recapture some of the share of wallet they have lost over time.

Virtual cards deliver enhanced security

In a 2020 whitepaper, Juniper Research cited reduced fraud as a core benefit of virtual payment cards. “Virtual cards can be limited in their application to a certain number or value of transactions, a certain seller, or a time limit on purchases. Any of these make virtual cards, in general, far safer to secure than physical card details, which are universally and typically usable for several years.”

Likewise, in an Experian article, it was noted that even if a fraudster compromises a virtual card, it may not do them much good because the card may have already been deactivated or the funds on the card depleted. In addition, if an account holder notices fraud on one of their virtual cards, the card holder can simply turn the card off or delete the card entirely. All of their other card numbers are safe. One-time use cards, of course, deliver the ultimate in security.

Virtual Cards are here to stay

The Juniper Research whitepaper also offered this view into the projected market size of virtual payments:

  • We expect virtual cards to process over $5 trillion in transactions by 2025, growing at a CAGR of 26% over the forecast period
  • Despite a 4% decline in virtual card spend in 2020 caused by COVID-19, the value of transactions processed by virtual cards will more than treble over the next five years, up from an anticipated $1.6 trillion in 2020, fueled by a greater need to authorize spend remotely
  • B2B usage will double over the next five years

The ground in the payments industry is shifting. An individual may not leave their bank or credit union entirely, but they are embracing new technologies for how and where they want to access, use, and manage their money. Stagnation is not an option. Community banks and credit unions must embrace state-of-the-art solutions if they want to remain competitive.

Virtual cards are convenient for account holders, reduce fraud, and increase interchange income. These cards are already here, and their usage will only continue to grow, so the time for virtual cards is now.

Bennett is EVP of Horizon Bank Texas. He also worked at FundsXpress, one of the first internet banking providers in the US. If you have questions regarding instant-issue, virtual payment cards for your community bank customers or credit union members, please contact him at