In the evolving landscape of healthcare finance, the adoption of Virtual Credit Cards (aka virtual cards or VCCs) is gaining momentum. These digital payment tools offer a streamlined, secure, and efficient alternative to traditional purchasing methods. As healthcare organizations face increasing financial pressures, understanding the benefits of virtual cards could significantly enhance their accounts payable (AP) processes.
Virtual credit cards are similar to traditional credit cards in that they have 16-digit numbers, an expiration date, and a CVV code. What makes virtual cards different though is that they have unique card numbers, which can be designated for one-time use or multiple uses. They can also be set up with controls (e.g., specific dollar amount, specific merchant or MCC) which help with budgeting and fraud.
In terms of day-to-day use, virtual credit cards can be used for many of the same purposes as Purchasing Cards that are often issued by companies to certain employees to help manage procurement spending. (Corporate Cards can also be used for a wide range of purchases and are typically issued to employees who spend in travel and entertainment categories.)
Source: Javelin Advisory Services, North America Commercial Credit Card Review & Forecast
The popularity of virtual cards is on the rise. According to Javelin Advisory Services, U.S. virtual card volume reached $294 billion in 2023, nearly equaling the $297 billion in purchasing card volume (corporate cards generated $90 billion of volume). The forecasted growth rate for virtual cards, at 11.7% annually from 2022 to 2027, significantly outpaces that of purchasing cards (4.4%) and corporate cards (9.3%).
In the healthcare sector, virtual cards are already utilized by insurers to pay medical and dental claims. When a claim is processed, the payer generates a single-use virtual card number linked to its credit account, which is then sent to the provider for electronic payment processing. This ensures prompt payment to the provider and simplifies transactions
While some healthcare providers have begun using virtual cards to pay their suppliers, there is substantial potential among accounts payable teams in hospitals, health systems, medical practices, and other healthcare organizations. Once a supplier invoice is approved, the buyer can issue a virtual card by submitting a payment instruction file to the bank. The bank then generates a one-time-use card number, which is emailed to the supplier for processing. Virtual cards provide a compelling value proposition when there is still a high volume of paper checks. But they also make a great option for all digital payments since the average cost to process a virtual card is estimated to be 15-20% less than ACH/ EFT.
Several key benefits help explain the rapid rise of virtual cards, particularly with respect to supplier payments:
As healthcare organizations navigate the complexities of financial management, virtual card use can bring meaningful improvements in accounts payable processes. The benefits of efficiency, security, and cash flow optimization make virtual cards an attractive option for healthcare purchasing teams.