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How to Disburse Loans via Virtual Cards and Why Your Business Should Get Started Too  

How to Disburse Loans via Virtual Cards and Why Your Business Should Get Started Too  

May 4, 2023

Digital lending from non-financial institutions and digital banks has become increasingly popular in the Southeast Asian market, celebrated as a modern and innovative form of financing that offers a faster and more accessible alternative to traditional lending methods. This includes various types of lending, such as Buy-Now-Pay-Later (BNPL), Micro, Small, and Medium Enterprises (MSME) lending, marketplace consumer lending, marketplace business lending, and more. According to the e-Conomy Sea Report 2021 by Google, Temasek, and Bain, digital lending (including BNPL) is expected to reach a staggering US $92 billion in transactions by 2025, marking a significant increase from US $23 billion in 2020.

In recent years, lenders in the region have explored various ways to disburse loans more quickly to the underbanked and unbanked borrowers without necessarily requiring them to have a bank account to request a loan. One way they can accomplish this is by issuing virtual cards that meet both criteria, allowing borrowers to receive lending without a bank account and obtain their funds instantly and securely to transact online directly.

How do Loan Disbursements Work with Virtual Cards?

This is usually how it works to receive credit through virtual cards:

  1. The borrower applies for a loan application through a lender through a website or a mobile app.
  2. The lender verifies the borrower's identity and eligibility through a digital process that may include accessing the borrower's credit score or analyzing their financial behavior.
  3. Once the borrower is approved for a loan, the lender issues a virtual card to the borrower through a digital platform, such as a mobile app.
  1. This card can either be a prepaid card (where funds are preloaded) or like a regular credit card.
  2. The lender can also set whether the card can only be for one-time or multiple uses.
  1. The borrower can then directly use the virtual card to make purchases online, as the card already has its own card number, CVV, and expiration date.

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Why Virtual Cards for Loan Disbursements?

1. Potential to Tap into a New Market

Although virtual cards are still relatively new in many parts of Southeast Asia, they have enormous potential to provide new opportunities to tap into untapped markets within the region. This is particularly relevant for MSMEs who have traditionally struggled to obtain loans through traditional means due to a lack of bank accounts and other required documentation.

It is noteworthy that the region experiences unmet financing needs and a funding gap of roughly US$300 billion, despite the fact that there are more than 70 million MSMEs and account for 97.2% - 99.9% of total establishments in the region. This issue can be addressed by providing credit through virtual cards, as direct access to credit is possible without the need for extensive background checks or a bank account. This can also help promote better financial inclusion in the long run.

2. Shift Toward Digital Transactions

Since the onset of the COVID-19 pandemic, a significant majority of people have shifted their preference toward online transactions for purchasing goods and conducting other transactions. This has brought about a fundamental change in how transactions are conducted, including a greater reliance on e-commerce platforms for shopping and mobile banking, and/or fintech super apps to make payments.

According to Visa's Consumer Payment Attitudes Study 2022, nearly 77% of consumers in Southeast Asia plan to use cashless payments more often. This shift can be attributed to the widespread adoption of mobile wallets (52%), contactless card payments (44%), and the increasing interest in newer payment methods like BNPL (63%).

3. Increased Security

With traditional lending methods, there is always a risk of fraud or theft, as cash or checks can be lost or stolen in transit. In contrast, virtual cards offer a more secure and traceable alternative. Moreover, virtual cards allow for real-time monitoring and transaction tracking, providing lenders with increased visibility and control over the lending process.

With virtual cards, lenders can restrict usage to specific merchants, dates, and amounts, ensuring that funds are used for the intended purpose. Borrowers also benefit from increased security, as virtual cards eliminate the need to share sensitive financial information with multiple parties.

Global Examples of Businesses Using Virtual Cards

Affirm Virtual Card

U.S.-based fintech firm Affirm offers an alternative to traditional credit cards and loans by providing one-time use virtual cards for their BNPL offerings. Affirm's lending process is simple and straightforward: customers can apply for a loan and receive quick approval within minutes, and if approved, they can choose a repayment plan that suits their budget. The company claims that borrowers can use the virtual card online or in-store. To complete transactions in-store, borrowers can load the virtual card onto their mobile device's digital wallet and then tap it on a card reader.

Traveloka Virtual Number Official Logo

This Indonesian-based travel platform offers Traveloka Virtual Number as part of its PayLater service, which functions as a one-time-use virtual credit card for purchases on affiliated platforms such as Shopee, Lazada, and BliBli. The virtual card has a minimal transaction value of only Rp50,000 (~US$3.41) and can be used for installment purchases.

However, to use this feature, customers must first register for Traveloka PayLater. The application process is straightforward, as borrowers only need their national ID card (KTP) and basic personal and occupational information.

MoneyMe Freestyle Credit Card

MoneyMe - Investor Centre

Aside from regular personal loans, Australian-based MoneyMe provides alternative forms of lending through their virtual credit card, which potential borrowers can apply for and get approved within minutes. The credit limit for the virtual credit card varies from AU$ 1,000 to AU$ 20,000 and can be used immediately for in-store purchases that accept Mastercard, online shopping, or even instant transfers to any bank account. Virtual credit cards can also be added to widely-used mobile payment platforms such as Google Pay or Apple Pay.

If Your Business is Looking to Issue Virtual Cards for Lending…

...then let Ayoconnect do it for you! We have recently launched our White Label Virtual Cards API with Mastercard,which allows us to issue cards on your platform in less than 7 days without any additional regulatory compliance, as we are already PCI-DSS compliant.

As a company trusted by more than 200 renowned institutions across Southeast Asia, such as Bank BRI, Gopay, Traveloka, and AXA Mandiri Insurance, we are confident that we can help you create the best business virtual cards for your lending needs.

With Ayoconnect’s White Label Virtual Cards, You’ll Be Able To:

Issue Cards with Flexible Usage

Not only can it be used for issuing loans to potential borrowers of all purposes, industries, and sizes or to provide BNPL schemes for online shopping, Ayoconnect's White Label Virtual Cards can also confidently support you in:

  1. Creating incentive and rewards cards for customer loyalty programs
  2. Tracking and managing company expenses easily
  3. Streamlining media buying and online ads across various platforms (Google Ads, Facebook Ads, etc.) and managing reconciliation with ease
  4. Allowing customers to receive insurance claims faster without having to own a bank account

Not Require Your Customers to Have a Bank Account

Our White Label Virtual Cards have been specifically designed to be inclusive of the Southeast Asian underbanked and unbanked market in mind. Hence, we have created a solution that does not require the cardholder to have a bank account to be able to receive funds and utilize the cards for the intended purposes!

To issue a credit to potential borrowers, you can simply deposit the required funds into our virtual cards. Once the card is loaded, it can be used right away, similar to a prepaid card. What's more, you can easily monitor every transaction through our centralized embedded interface available on the web and mobile, providing enhanced security and ease in managing your borrowers’ transactional activities.

Customize and Rebrand Them to Suit Your Business

Partnering with one of the world’s best global payment technology companies, Mastercard, we are committed to making sure that our White Label Virtual Cards will be fully customizable and re-brandable to any of your needs.

Not only our cards can be freely used as single-use cards or multi-use cards where the card can be easily transferred from one user to another, but other aspects of the cards can be fully customizable as well. The card limit, expiration date, numbers, and even the design can be fully designed to match your business’ aesthetics, making it fully re-brandable as your company’s own virtual cards in the market.

Ready to #MoveForward with us? Contact us for more information here!