How virtual cards can protect against payment fraud

As check fraud schemes become increasingly sophisticated, the need for more secure payment alternatives has grown. Virtual card payments provide fraud protections that make them significantly safer than checks.

Quick question: Where’s your checkbook? Is it tucked away at home collecting dust? If you’re like most people, you write far fewer checks than you used to. However, in the business world, checks are a common payment method. In fact, paper checks continue to be used in 40% of business transactions.¹

Top performing AP departments use a strategic mix of payment methods to optimize working capital, and checks might always have a place in that mix. But as check fraud schemes become increasingly sophisticated, the need for more secure payment alternatives has grown.

Consider these indicators:

According to the 2024 AFP® Payments Fraud and Control Survey Report²:

• In 2023, 80% of firms said they had been the victim of payment fraud, up from 65% in 2022.
• According to 65% of respondents, checks remain the payment form that is most susceptible to fraud.
• According to 30% of respondents that were the victim of fraud, their organizations were unable to get back the money they had lost to fraud.
• In 2023, 63% of firms experienced business email compromise (BEC). Checks still remain a target for these scams.

Virtual credit cards offer several fraud protections that make them significantly safer than checks. Virtual payments are unique, cardless account numbers assigned to specific suppliers or individuals, for a set amount and date range. Strong control features make them an ideal defense against payment fraud.

While no payment method is 100% immune to fraud, virtual cards are significantly more secure than checks. Five features help prevent theft and protect against loss.

Five-point virtual payment protection

Unique account number

Virtual card numbers are coded for a specific supplier or individual and a set amount. They can’t be processed without the correct supplier or individual credentials and they can’t be charged for an unauthorized amount.

Automatic deactivation

Once a payment is processed, a virtual account number automatically becomes inactive and can’t be used again. This reduces the risk of intentional fraud as well as accidental duplicate charges.

MCC controls

Organizations have the ability to designate allowable merchant category codes (MCC) for their program. Fraud risk can be reduced by blocking MCC that your organization wouldn’t likely be making payments to.

Account number expiration

Virtual credit cards can be coded with expiration dates to ensure that payments are made and processed in a timely manner. If a payment isn’t processed within the allowable timeframe, the account number expires and can’t be charged. Limiting the time that an account number is active reduces exposure to fraud.

Liability waiver

Virtual cards carry liability protection – a significant advantage that organizations often overlook or aren’t aware of. In the unlikely event that a virtual card number is fraudulently charged, the loss is covered by the paying organization’s commercial card association. Visa^® and Mastercard^® offer similar liability waiver protections. If a virtual account number is processed for an unauthorized charge, organizations have the same chargeback rights as “card not present” commercial card transactions. That means that if the fraud is reported according to contract terms, the paying organization won’t be liable for the loss.

Mount a strong defense

The best defense against fraud is to prevent it from happening in the first place. If your organization doesn’t conduct regular reviews of its payment security policies and practices, make that the first priority. Plans should address scams initiated by individuals – such as phone calls and letters – as well as automated, electronic cybercrimes like business email compromise, phishing and hacking. Are procedures in place? Do employees have the tools and training they need to put them into practice?

Review current payment methods

Consider the security features of your organization’s payment methods. If your AP department relies heavily on check payments, the addition of virtual cards could reduce your exposure to fraud. And your card association’s liability waiver can provide an additional layer of protection against loss.