What is a Virtual Credit Card? Features, Benefits, and Limitations

An illustration of a virtual credit card

Virtual credit cards offer a safer way to make digital payments and keep tracks of all your online transactions.

If your virtual credit card is compromised, you can immediately cancel the virtual card without having to cancel your original credit card account.

Most virtual credit card providers offer 'free' corporate virtual credit cards for employees with options such as spending limits and fraud protection.

In today’s world, more and more people are embracing virtual payment for goods and services. Based on public views mere decades ago, this switch seems unprecedented.

A study by the Federal Reserve System found that electronic payments are over ⅔ of all non-cash payments and that 64 million households are paying at least one of their bills online.

A deep distrust of information safe online and even some outdated views on credit cards themselves make it surprising that virtual payment has shifted to the widely accepted juggernaut it’s become. However, over the past few years, greater security protocols have made virtual payment the preferred method for protecting sensitive data.

But virtual cards don't just offer an extra security layer - It has more features and benefits that go beyond just fraud protection. Though this is the case, virtual cards also have their limitations.

Keep reading to find out more about how virtual credit cards work, what alternative you can use, and how you can leverage them for personal or business use.

What is a virtual credit card?

A virtual credit card is a type of online payment card that acts as a "digital version" of your physical credit card to help simplify your online transactions with additional layers of security to prevent your financial data from being stolen.

A virtual credit card masks a consumer’s credit information by the creation of a proxy card number unique to the transaction, as well as an expiration date to safeguard your information.

How does a virtual credit card work?

The term "virtual credit card" can be slightly misleading. It isn’t separate from a traditional credit card account, but a free add-on to an existing credit account that offers increased safety.

A virtual credit card can be used for any online site or transaction. However, you can’t use a virtual credit card for brick-and-mortar retailers, as you need a card to be scanned. Other situations are a little trickier and need to be navigated on a case-by-case basis.

For instance, if you book a hotel or rent a car, you may make a payment virtually online. But in some cases, this may require an actual card that needs to be scanned when you check-in in person. Thus, It's best to check with the vendor before making any payment.

Features of virtual credit cards

Here are some of the features you can expect from a virtual credit card:

  • Create unique numbers each time you make a purchase online
  • Make contactless payments in online or physical stores securely
  • Track spending by organizing your expenditure, and keeping tabs on all your transactions
  • Gain rewards that physical credit cards offer without having to carry them
  • You can create any number on your virtual card without harming your credit score

📊 Statistics: In 2022, the virtual cards market was worth USD 13.31 billion. This number is expected to grow at a rate of 20.9% every year from 2023 to 2030

Benefits of using a virtual credit card

With more payments being done online, it's easier than ever for safe and secure transactions. But what are the benefits of using a virtual credit card?

Virtual credit cards come with a lot of benefits, but there are also limitations to using them.

Let's dive into some of the most notable benefits that your virtual credit card can offer.

No additional charges to create one

The concept of having a credit card is not something new. For top-tier banks, creating a virtual credit card requires no additional charges.

Just like having a physical card to make purchases online, your virtual card can do the same. And it comes with plenty of benefits that even sometimes physical cards don't offer.

For instance, virtual cards are boundaryless when you use one. If you're traveling, you can be sure that your virtual credit card will come in handy anytime you need to use them.

This is quite convenient for those who may be concerned about security as virtual credit cards can prevent fraud and other security issues.

Convenience and Safety for Online Purchasing

This shift in the public’s collective thinking actually makes sense when you break down the safety benefits of virtual payment.

The use of virtual credit cards slashes cases of fraud, as would-be criminals don’t gain much if they steal the information.

Virtual credit cards are issued either as a separate number for each merchant or as a single number that can be changed by the holder at any time.

The impermanence of these numbers makes theft a losing game.

Eliminating Issues in Business Travel

Using the company credit card for business travel is moving toward becoming obsolete.

With physical cards, there are too many opportunities for fraud. Likewise, when you travel for business, you add the issues of policy compliance and expense reports.

With a single-use, an encrypted number that is assigned to a single transaction to a single vendor, this kind of fraud becomes virtually nonexistent.

The use of virtual credit cards ensures employee compliance with company spending. An assigned corporate credit card can be used at will by the employee. This creates necessary audits to match transactions to each payment.

This adds up to a lot of wasted hours when you have a company with a large travel contingent. Virtual payments are automatically matched to each transaction, eliminating this step.

The use of virtual credit cards to make transactions for business travel can keep money safe, and save money for the company as well.

💳 Did you know?: Almost half of all credit card fraud was from card-not-present (CNP) transactions, which typically occur when a transaction takes place without the cardholder at the point-of-sale

Is there any limitation to using a virtual credit card?

There can be limitations that you may face when using a virtual card.

For instance, when you're using physical cards vs. virtual cards, due to the extra layer of security that virtual cards may have you may not be able to use them after 48 hours. Virtual credit cards provider usually allow limits for using a certain unique number to be used for a period of time.

Another downside of using a virtual credit card would be that if you purchase products online often and you want to ask for a refund or return from the seller, there may be complications when it comes to using virtual credit cards compared with a physical card.

This is mainly because the unique number generated for the cards may have altered and it can be quite complex for vendors to return your funds.

Are virtual credit cards safe?

As transactions grow online, digital payments become the main source of point-of-purchase for most users.

As a result, would it be safe to use virtual credit cards? The answer is YES! And here are some reasons why it's safe:

  • One-time usage: Most virtual credit cards are used for a single purchase, unlike those physical cards. This creates a limited number of transactions, making it more secure.
  • Immediate cancellation: If you suspect that the security of your virtual cards is breached, like when it falls into the wrong hands, you can cancel your virtual cards instantly without having to lose your credit card account information in the process.

Nevertheless, given the reasons for its safety, it's important to understand that virtual cards are, not by any means, fraud-proof.

So, it's important to update your virtual card information regularly to avoid any unusual transactions that may come your way.

How do I get a virtual credit card?

Once you have chosen the provider for your virtual credit card, it's time to take some action.

There are a few steps to accessing a virtual credit card, but the good news is, that it’s not difficult to do.

1. Apply for a credit card (if you don’t have one already)

To have access to a virtual credit card, you need to have an existing credit card account.

Virtual credit cards are available with most major card issues (AmEx, CitiBank, and Capital One, just to name a few).

Even systems like Apple Pay and PayPal now have virtual credit card options available.

2. Access your account settings

Go online under your credit card account and you’ll find a section for “virtual card numbers”, or search for virtual credit cards.

Your site should pop up with a page that will explain the process.

3. Accept your number (and download the app if necessary)

Your issuer will have directions to follow on the website.

They may have you download an app that is specific to their virtual credit card.

Others may let you access your virtual credit card through their regular banking app.

They will give you a 16-digit number that is generated for you.

4. Decide on an expiration date

You can use the access number for one transaction, or set it up for a recurring expense.

Some issuers will decide the expiration date for you, in cases where different numbers are assigned for different merchants.

You can use your virtual credit card information given to you just as you would use a regular credit card online.

While a virtual credit card is not always feasible (as in cases of brick-and-mortar purchases), they are incredibly safe and convenient in most cases.

And with the majority of businesses shifting to an online model, virtual payments will only become more prolific in the coming years.

Are you looking for a virtual business account for your business?

Bottom line

Whether you're using a virtual credit card for personal use or for business, the features and benefits of this digital payment option represent a vast growth in online transactions.

But it's important to keep in mind that virtual credit cards also have their limitations.

It's always vital to keep your information safe and update them regularly to utilize them to its full capability, where you can enjoy all the benefits and an additional layer of security that they offer.

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