Bridging the GAAP Podcast Series: All about V cards (part one)

Speaker 1

Hello, and welcome to Medius' new podcast series, Bridging the GAAP. Together with Spend Matters, we've put together a podcast series exploring a wide range of topics from the evolution of technology and finance to tax compliance to sourcing strategies to fraud risk and mitigation. In today's episode all about V cards, Pierre Mitchell, Chief Research Officer at Spend Matters interviews Neal Anderson, Medius' Vice President of Payments Strategy on the advantages and disadvantages of V cards. Take it away, Pierre.

Speaker 2

Hi. This is Pierre Mitchell. I'm a managing director and head of strategic research here at Spend Matters. We are a leading technology advisory research and analyst firm focusing on procurement and the broader area in terms of supply chain and finance and other related areas.

And I'm really excited to be able to do a systematic brain pick with Neal Anderson here. And Neal, thanks for joining me. I know a little bit about procurement to be dangerous, but over on the payment side, I do have, you know, pretty much a walnut sized brain. So I'm going to be looking for you to kind of help me and the audience get a little more educated on the topic.

But anyway, welcome.

Speaker 3

Well, thank you, Pierre. It's great to be here, and thanks for having me. I am Neal Anderson. I'm Vice President of Strategy for Payments here at Medius. I joined Medius back in March 2022. Prior to joining Medius, I was the CEO at OnPay Solutions for the last ten, eleven years or so.

Speaker 2

Well, awesome. Well, listen, hey, I thought kind of where I'd start the discussion is for the, I know most listeners probably know, but just if you can, in thirty seconds or less, no, actually just in a minute or two or less, just talk a little bit about a virtual card. I think folks are familiar generally with procurement cards or travel cards, and there's so many different flavors. I think generally we have the, you know, I kind of have the idea as virtual as no plastic, but maybe if you could just kind of give me a little bit of a rundown of virtual card versus other commercial card flavors that are out there.

Speaker 3

Yeah, absolutely. Pierre, So the key difference between a virtual card and a physical plastic credit card is that a virtual card is a one time use 16 digit credit card number with its own unique expiration date and unique security code, typically tied to an accounts payable payment, paying a vendor for an invoice, and it's typically tied to either an invoice or group of invoices and certainly a dollar amount. And so the uniqueness about this is that when a vendor receives a virtual credit card and processes that credit card for that specific dollar amount, the card number disappears from the credit card network, never to be used again. And so it's a secure, means of making a business to business payment.

Speaker 2

Right. And for that supplier or merchant that is using it, it's just to them, it's going to appear just like any other kind of P Card. It's just going to be, you know, behind the scenes, it's going to be kind of that one time charge it up, you know, use case, right?

Speaker 3

That's exactly right. They'll receive that virtual card, credit card number. They can process that credit card any way that they would normally process any physical piece of plastic. They just hand key the number into their card terminal and process the card. And when they do so, typically within twenty four hours, the money will be deposited into their merchant services bank account.

Speaker 2

Got it. Okay. Well, that makes sense. Well, I think kind of like just virtual versus a physical card. I mean, obviously it seems like that makes the card administration a lot easier for the people who have to run the overall program because you're not chasing plastic and it's just, I would think that the user management and integrating it with, let's say, the controls or just any other user information that you can just do that virtually, right, as well?

Speaker 3

Yeah, that's right. And so, you know, a big part of what we do at Medius, and especially within Medius Pay, is that control aspect of the card. For example, our payer clients can, you know, determine, is this vendor going to be paid by a virtual card? Is there maybe a dollar amount that needs to be approved by a higher authority like a CFO or maybe even the CEO before the card is processed and sent.

Same thing with the vendor who's receiving that card. Maybe they've got some sort of limitation over the dollar amounts that they can process on a single card process. Well, how can that be managed so that we can break that card swipe up so that they can actually process the full dollar amount of the card as well? So yeah, a lot of controls and thought have gone into that process.

Speaker 2

Cool, that makes sense. And just, I mean, one more quick question in terms of just how it works. I assume that this will integrate with both expense reporting systems as well as it can be just a payment vehicle, which I want to talk to you about in a second. But I assume it's going to be able to integrate into those kind of use cases and auto populate into an expense report or whatever for when you need to use an expense report for whatever reason, untethered contractors or business travelers?

Speaker 3

Yeah, absolutely Pierre. And more importantly, you know, how can we provide this integration into a company's accounting system, into their ERP system? You know, accounting systems all support the ability to pay a vendor by paper check and by ACH, electronic ACH direct deposit. What they don't support is a third payment type called a virtual card for the most part. And so being able to provide this payment type as another option to pay your vendors electronically is a real key component to the Medius Pay system, to be able to onboard these vendors to be able to accept and take a virtual card. And then not only that, being able to integrate with the ERP so that we can actually take that payment data and route that as a virtual card versus a paper check, for example.

Speaker 2

Right, and that's kind of like where I always think about kind of on the AP side other than, know, on the, let's say the invoicing side, I always just think about it as, okay, we're moving from paper checks to, you know, ACH, but there's always been this little black sheep stepchild, you know, called P Cards and now here a better form of them with V Cards, you know, so how do those all just dovetail within that payment, you know, streams? So it just kind of it's all visible to on the AP side as well as I guess on the procurement side.

Speaker 3

Yeah, and I think it's important to understand the difference between a pay card or a P card, as well as a virtual card, and because they both have relevant applications, and where one is better used than the other. So for example, a P Card, that's a physical piece of plastic, where if an expense management program, if you've got employees who are traveling or employees that need to, instead of access petty cash, they have a credit card that they can process that on. A great use of a P Card would be if you're at Office Depot and you're buying office supplies and use your company plastic.

Ideal solution for that. A virtual credit card, we're all guilty of this when we've made a payment in our own personal lives, where somebody asks for your credit card number over the phone, or you willingly hand key that credit card number into a website somewhere. Well, soon as you do that, you're now exposing and trusting, you know, the person or a company or entity that you're giving that information to that they're going to protect that data and they're going to do the right thing with that data. Yeah.

But certainly credit card fraud is a huge problem. That's a big reason for that. Well virtual card directly eliminates that issue, because, as I said earlier, once that card has been issued once that card has been processed that card number disappears, you never have to worry about anybody.

Running that card number multiple times

Speaker 2

Yeah, and that seems like it's just a much better solution to than just kind of doing this to say, well, you know, like central pay versus employee pay.

Well, we're just going to push the risk to the employee and then they've got to go and ask for the money. I mean, you're shifting the risk. You're not really mitigating the risk versus the the V card where it's, you know, just gonna be, you know, whatever that amount is that you charge up and and approve. So, it definitely seems kind of optimal in in that way and I guess you you bring up a really good point too around, you know, when you think about ACH and kind of banking details and things like that, you know, they're really heavy controls that are required there, but you know, it's really so much control and so much potential risk for something where you're just using a vendor a couple of times a year or it's a low dollar transaction. Definitely seems like value to kind of keep these vendors out of the ACH channel and out of having to set up banking details. It's like overkill, right?

I mean

Speaker 3

Well, you're right.

And it's really from a vendor standpoint to accept a virtual card is really about a convenience to their customer. And if it helps their customer pay them faster in a more efficient manner, then, you know, companies, as we all know, most companies do accept credit cards now in the form of payment. And so this is just a way for a vendor to be able to extend that to their client to be paid faster ideally in a more efficient manner. And to your point, not have to give up your bank account routing number information and have to worry about managing that data as well.

Speaker 2

So I assume like in terms of V cards, you can still do things like getting the dividends or other kind of card related benefits. Are those all still part of the program, if you will?

Speaker 3

Yeah, absolutely. And so, you know, I think what's key is that a virtual card for us is just another option to our clients, our payer clients, to offer electronic payments to their vendors. Because within Medius Pay, we're all about how do we move to an autonomous, touchless, seamless way to pay your vendors in the manner that the vendors want to be paid in then as well. And so, you know, ACH does play a role in that, but virtual card is a great option as well.

Speaker 2

Yeah. I like your point about kind of the optimizing the choice here to the let's just say the process participants because in the kind of procurement and p to p kind of benchmarking or to think about kind of this this turnaround, optimizing the buy pay channel. So both procurement and the payment side.

So on the procurement and sourcing side, we see a lot of okay, anything below or above a certain amount does procurement, you know, source it and touch it or whatever. But in terms of just like the on the downstream side for the actual purchasing and payable side, there's definitely, you know, ways in which you wanna optimize. Do I do I wanna use a v card or a p card or do I wanna do three way match or two way match or evaluated receipt settlement or what you know, all these different kind of models. But you bring a great point about the vendor choice too, which is, is this a choice that makes sense for them?

Or they may be like, hey, I'm already integrated into Mastercard or, you know, whoever's gonna, work with them. But also maybe they don't mind, they're happy to kind of take the cash upfront right now and in exchange for rebate or whatever. So it seems like that is probably a really valuable flexibility that you can kind of help onboard suppliers as part of a like a P2P project. Have you found that to be the case in the trenches?

Speaker 3

Yeah, absolutely. Yeah. And that's again a big part of the media's pay solution is working directly with the vendors to invite them to be paid electronically. Pierre, and I use that word invitation very strategically because we want that vendor, we want that experience to be something where if they're comfortable taking credit cards, they can select credit card as a method of payment and they're enrolled and ready to go.

Equally as important though, is if they would rather be paid via ACH, well then we can easily collect their bank account routing number and take over the onboarding of a vendor for ACH payments. We even offer if a vendor is routinely being paid via wire transfer, then we can offer a wire transfer into that process as well, both in North America and throughout the world. And so it's all about the efficiency to our payer to be able to onboard their vendors to be paid electronically and ideally eliminate paper checks completely. And certainly the virtual card is a real cornerstone of our electronic payment offering.

Speaker 2

When you guys do implementations, and I probably should know this just a kind of what we do. But, as part of your project implementations and planning, will you take a company's kind of spend history and their vendor master and be able to kind of map that to all of the suppliers that you know can pay in a certain way or whatever and kind of help with the kind of onboarding planning because that always is that sticky wicket around kind of, you know, the vendor onboarding piece.

Speaker 3

Yeah, Pierre, you know, that's really step number one is being able to review our clients' accounts payable vendor file, analyze their spend. Well, one of the first things we'll do is we want to match that up with known card acceptors from Mastercard so we know exactly who already accepts virtual cards as part of this.

That really forms the nucleus for our outreach campaign to invite those vendors to accept the credit card. Certainly, if they're taking a credit card from anybody else, any of their other customers, they'll certainly take a credit card from our payer client as well. And then beyond that, even that ACH enrollment becomes a factor also. So yeah, that's kind of step number one, and being able to match the AP spend up with the known card acceptors and create that onboarding.

Speaker 2

And I assume it's kind of nice too, when you don't have to set up these one time or small dollar payments, you don't have to set up those vendors in the vendor master file, which is AP and and or procurement having to work together. It's actually funny when I used to work in the benchmarking area. It was like the number one popular webcast that we always had was vendor master data file maintenance. It was like the most boring thing.

And you'd be like, why is this so interesting? Because it's such a pain, right, about who controls the vendor master information and how does that work and the choke point and how do we collaborate around that, you know. But that was like such a big thing. So it does seem like reducing the volume in this painful process would be a welcomed chain.

Speaker 3

Well, I'll tell you, Pierre, I mean, this happens all the time. I mean, you imagine if you were a CFO, and you've been reading about electronic payments, you come into your AP department one Monday morning and say, hey gang, I've been reading about electronic payments, I want to start paying our vendors electronically, and let's get this project done within ninety days.

Well, a company almost of any size, especially larger businesses that we tend to work with, have thousands of active vendors. And for an AP department to go out and ask every one of these vendors to be either paid via ACH or be paid by credit card. I mean, they all have their own full time jobs, right? They're already, you know, fully tasked.

And, you know, somebody's looking around now, who's going to stop and make thousands of phone calls? Who's going to collect this information? And when we collect it, who's going to key it into an ERP or a database? And then who's going to secure it now that we've collected this vital information?

There's just a lot of friction in that process.

And so really, that's the number one reason why the paper check-in The United States still makes up 48% or so of the total payment volume, is just because of that friction. For us at Medius Pay, that's an opportunity. That's where we want to step in and be able to take that friction out of this process by providing those vital services to the AP department.

Speaker 2

It's crazy that the number is so high, especially since we're trying to just get beyond paper contracts, paper checks, paper anything. Right? Right. Well, Neal, that's a good place to stop right here in terms of focusing on the downstream side. But maybe in our next episode here, we can shift upstream and talk a little bit more about the procurement side and looking at the overall, end to end, procure through pay process.

Speaker 1

That was part one of all about V cards in our ongoing podcast series, Bridging the GAAP. Be sure to catch part two of Pierre and Neal's discussion. And to take all of your business spend management far beyond basic automation, visit medius.com. Thank you for listening.