Want to learn more about virtual payments? See below for a list of virtual payment FAQS.
Virtual payments are becoming a popular payment method in business-to-business (B2B) transactions. As an alternative to cash, checks, and EFT, virtual payments are quick, secure, and can greatly reduce costs for all parties involved. See below for answers to frequently asked questions (FAQs) about virtual payments.
Virtual Payment FAQs:
What is a virtual payment?
A virtual payment is a terminal-based payment method where the payment is delivered through a virtual card number instead of by check or cash.
How do virtual payments work?
After the payer receives an invoice from the service provider, the payer submits a payment file to the payment processor. Once the payment is ready, the processor generates a unique card number and sends notification to the recipient. The recipient enters the single-use card number and payment information into their point-of-service (POS) terminal, and the funds are delivered to the recipient’s bank account.
How does the recipient know they are receiving a virtual payment?
Once the payment is ready, the payment processor sends the service provider the payment information. The payment information includes a unique 16-digit number (similar to a credit card), a CVV, expiration date, and the payment amount. Also included is the claim information, invoice, or explanation of benefits (EOB).
Are virtual payments secure?
Yes. There is no need for service providers to transfer sensitive information (bank account numbers or mailing addresses) to the payer or payment processor. Additionally, once the transaction is complete, the card number is no longer valid.
Who makes virtual payments?
Any person or business can use virtual payments. However, the typical user would be a company who writes a lot of checks or sends a lot of payments.
Who can receive a virtual payment?
Any service provider, such as a doctor’s office, medical equipment dealer, auto mechanic, etc., may receive a virtual payment as long as they have a POS terminal.
What costs are involved?
For payers, a virtual payment solution is typically a no-cost service. For service providers or other payment recipients, there is normally a merchant card processing fee (usually three percent). However, estimates show that the costs for payment recipients is less than the combined administrative costs of receiving physical payments, which include payment reconciliation, record keeping, and deposit time, among other expenses.
Are virtual payments more cost-effective than checks?
Yes. Checks can cost $1.61 to $8 per transaction1, not including the cost of postage and processing fees; the estimate also does not include the cost of lost or late checks. Many payment processors offer their service as a no-cost solution to the payer.
For service providers, the administrative costs of payment reconciliation, filing, and deposits can add up quickly. Virtual payments greatly reduce these costs.
How long does it take to process a virtual payment?
It takes about two business days for a payment to process. Checks can take up to 10 days.
What are the advantages of using virtual payments over a check or other payment method?
According to the 2016 AFP Electronic Payments Survey, the top five benefits of electronic payments are cost savings, speed of settlement, improved cash forecasting, more efficient reconciliation, and fraud control. Here are the three distinct advantages of virtual payments:
- Decreased costs – Checks are costly, up to $8 per payment; the cost goes even higher for lost or stolen checks. Then there are the administrative costs involved with cashing, tracking, and filing the payment. Virtual payments greatly reduce the costs of paper, postage, and time spent. Fifty-one percent of organizations using electronic payments reported cost savings as one of the benefits, according to AFP’s survey.
- Increased cash flow – Checks can be very slow to process. With a virtual payment, the reduced payment processing time and quick payment send can greatly increase the recipient’s cash flow. Better cash flow ultimately results in improved customer satisfaction which benefits both the payer and the recipient.
- Greater security – Virtual payments do not require the transfer of sensitive banking information to receive payment. Plus, single-use card numbers greatly reduces the risk of payment fraud. Checks and EFT are vulnerable to fraud due to the requirement of bank account and routing numbers, and personal identification information. In 2014, 77% of organizations that experienced payment fraud were victims of check fraud2.
DataPath is an end-to-end card and payment processor that offers a virtual payment solution. Provider Payments streamlines, speeds up, and secures insurance claims payments to medical service providers. Get your free demo today and learn how Provider Payments takes the pain out of claims remittance.
1 AP Automation Study published by the Institute of Financial Operations in 2013