Introduction
Corporate payment cards have traditionally been used by travel companies to pay for business-related expenses. Typically, this has been through a physical card used by certain employees. However, in the ever-evolving online space, the use of physical cards has made certain transactions susceptible to fraud. Additionally, management of such cards has become arduous and time-consuming.
Travel companies (and in particular, online travel agents (“OTAs”) have long since shifted away from the use of physical payment cards in favour of one-time use virtual cards.
What are virtual cards?
Virtual cards are the same as physical payment cards, but they only exist digitally. Each virtual card (like physical cards) has a unique 16-digit number, a 3 or 4-digit CVV number and an expiration date. Names can also be added to the cards, which can be generated digitally at the point of sale.
These virtual cards can be used to pay for an array of travel services – flights, accommodation, trains, car rental, ancillaries etc. This is particularly useful for consumer-facing travel companies which organise packages or sell single component services (e.g. flight-only or hotel-only), but also for travel management companies making business travel arrangements on behalf of their clients.
What are some of the advantages of using virtual cards?
Some of the benefits of using multiple one-time use virtual cards include:
- Increased security for online payments. If payments are made through single use virtual cards, which expire after payment has been made, the possibility of fraudulent activity taking place on these cards is very low.
- There is no need for a physical card, which can often become lost or damaged.
- Virtual cards are accepted in any country where physical plastic cards are accepted, and in a wide range of currencies.
- Companies can have multiple virtual cards issued instantly to make multiple purchases with one or more merchants / suppliers.
- Companies can apply certain restrictions to virtual cards. For instance, the amount which can be spent, the name(s) of specific merchants / suppliers and date ranges for charges to be taken, maximum spend, etc. These kinds of parameters can reduce the risk of overspending and payments made in error.
- Virtual cards can provide much faster, more precise and more detailed reporting and reconciliation, which makes for easier financial management.
Additionally, it is possible to raise chargeback claims (i.e. applying to the card issuer for a refund) for payments made using virtual cards where travel services have been purchased but are not then provided such as when Monarch Airlines failed in 2017.
Travel companies were able to exercise their chargeback rights on the virtual cards they had used to purchase the Monarch flights, despite Monarch’s insolvency.
Similarly, Thomas Cook’s failure in 2019 sent shockwaves through the industry, impacting many travel companies which had been buying and “packaging up” Thomas Cook flights before selling to their customers. Travel companies which had used virtual cards to purchase Thomas Cook services were also able to reclaim their payments through chargeback claims.
More recently, we have seen travel companies take the same approach as they have grappled with securing refunds for flights cancelled as a result of Covid-19. Travel companies have been able to secure significant refunds through the chargeback system.
Conclusion
Virtual cards have an array of advantages for travel companies. Most importantly, virtual cards have helped reduce the risks of fraud and have provided an effective means for travel companies to mitigate the risk of supplier insolvency or suppliers defaulting on their refund obligations.
Any travel company not already using virtual cards to pay suppliers would be well advised to look at these advantages over other payment methods.
If you would like to discuss any of the issues raised in this article with any of the travel team at Fox Williams, please do not hesitate to get in touch with us.
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