Tech Insight : What Are ‘Virtual’ Credit Cards?

In this tech-insight, we take a look at the world of virtual cards, who offers them, their benefits, and other secure payment alternatives.

What Are Virtual Credit Card Numbers? 

Virtual credit cards and their card numbers (as the name suggests) only exist in the virtual world, e.g. in an app on your phone, and are temporary, randomly generated 16-digit numbers that are associated with an existing credit card account (it masks the real card number). The number is unique for each transaction for a limited time. Just as they can be quickly generated and immediately and customised after their initial use, they can also be immediately revoked if necessary (handy for security).

Virtual cards with virtual numbers (although they still have an expiry date and CVV) can be used to purchase things online and in-app, in some cases over the phone, and also to pay in-store with mobile payment via other services such as Google Pay and Apple Pay.

Why?

Having a virtual, randomly generated, temporary (and easy to revoke) number makes online transactions safer and more secure by reducing the risk of fraud and misuse, e.g. from phishing and hackers. It essentially creates an invisible buffer between a card account holder and bad actors.

Other Benefits 

In addition to the added security and convenience, other benefits of virtual credit cards include:

– Users can get more control over their spending, for example by implementing setting spending limits and expiration dates on virtual cards, thereby helping to manage budgets and prevent unauthorised charges.

– Greater privacy protection during online transactions because virtual cards don’t directly expose the user’s primary credit card information, and they help protect the user’s privacy during online transactions.

– Enabling easy subscription management, i.e. they can be extremely useful for managing subscriptions or trial services, as they can be easily cancelled without affecting other transactions or the need to change the primary card details.

Who?  

Virtual card numbers are available to consumers (online shoppers), businesses managing their expenses, and any individuals or entities concerned about financial privacy and security.

In the UK, virtual card numbers are offered by a mix of traditional banks, fintech companies, and specialised financial service providers. Examples include:

– Barclays, through its Barclaycard product line, for individuals and businesses.

– The Revolut fintech app. This offers virtual cards alongside its physical debit card.

– Monzo, which says customers can create virtual cards in its app and have up to 5 at any time.

– Starling Bank, which says its customers can create virtual debit cards linked to budgets. Starling customers can have multiple virtual cards for free and use them to make payments in person using a mobile wallet.

– The Curve fintech company which offers a virtual Curve Card, enabling users to pay using their app or the virtual card can be added to Apple Pay, Samsung Pay, or Google Pay.

– Capital One, which allows customers to create virtual numbers linked to one of their Capital One cards.

Drawbacks 

Although a virtual card / virtual card number offers the primary benefits of security and convenience, there are some drawbacks. For example:

– Being virtual means that there’s no magstripe or Chip & PIN, meaning that a virtual card can’t be used to withdraw cash, e.g. from an ATM.

– Not all merchants accept virtual cards, especially for transactions that require a physical card to be presented at a later time, such as car rentals or hotel bookings.

– Challenges with returns and refunds. For example, if you need to return a purchase made with a virtual card, the process can be complicated if the card has expired or if the merchant requires the original payment card to process a refund.

– Since virtual cards rely on digital platforms and internet access for their creation, management, and usage, they can be subject to technical issues such as problems with the app or limited internet access; it may be difficult or impossible to generate a new virtual card or access existing ones. This reliance on technology can be a significant drawback in situations where digital access is compromised or unavailable.

Alternatives 

There are several alternatives to virtual cards that also offer a layer of security, such as:

– Digital wallets / e-wallets, including Apple Pay, Google Pay, and Samsung Pay, which allow users to store their payment information securely on their devices. As mentioned above, virtual card providers also let customers add their virtual cards to and use them via these wallets.

– Intermediate-style payment services like PayPal, Venmo (in the US), and Alipay.

– Some bank-issued secure payment apps.

– Mastercard Click to Pay and Visa Checkout.

– Cryptocurrencies like Bitcoin, Ethereum and others, which offer a decentralised way to make secure transactions.

– Prepaid cards such as Monese or the Revolut prepaid card.

What About Google Pay Or Apple Pay? 

Although Google Pay and Apple Pay don’t directly offer virtual card numbers in the same way that banks or specific credit card issuers do, they provide a form of transaction security that resembles the use of virtual card numbers. For example, in the case of Apple Pay, actual card numbers aren’t stored on the device or on Apple servers. Instead, a unique Device Account Number is assigned, encrypted, and securely stored in the Secure Element on your iPhone and each transaction is authorised with a one-time unique dynamic security code.

Similarly, Google Pay uses tokenisation to replace the actual credit or debit card number with a virtual account number when a transaction is made meaning that the real card details aren’t shared with merchants during the payment process.

What Does This Mean For Your Business? 

Ways to pay digitally are evolving, which is just as well because so are the methods to commit fraud and cybercrime. Virtual credit cards are a shift towards more secure and manageable financial transactions. They offer a range of benefits across the spectrum of commerce, from banks issuing these cards to retailers accepting them, and businesses using them for operational expenses.

The banks and other issuers of virtual cards stand to benefit from reduced fraud losses, as these cards offer enhanced security features that make unauthorised transactions harder to execute. Also, offering virtual cards can be a strong competitive differentiator, attracting customers looking for innovative and secure payment solutions. It also opens up new revenue streams through service offerings tailored around virtual card management and security services.

For retailers and other businesses, accepting virtual card payments allows them to tap into a growing segment of consumers who prefer using digital-first payment solutions. It can be faster and lead to reduced transaction disputes and chargebacks due to the enhanced security features of virtual cards. Also, embracing such payment methods demonstrates a commitment to customer security, potentially boosting consumer trust and loyalty.

Businesses leveraging virtual cards for their expenditures can achieve greater control over their finances. For example, these cards facilitate precise budget management, enable easy tracking of spending, and simplify the reconciliation process. Virtual cards also allow businesses to minimise exposure to fraud in B2B transactions, ensuring that vendor payments are secure and controlled.

For us consumers, virtual cards offer enhanced security and convenience when making online purchases. By masking their real card details, consumers can shop with peace of mind, knowing their financial information is better protected against fraud. Virtual cards also offer a more seamless online shopping experience, with features like easy subscription management and controlled spending limits.

While the benefits appear to be significant, it’s still important to acknowledge the drawbacks mentioned earlier, such as limited physical acceptance and potential challenges with returns and refunds. However, the positive aspects outweigh these limitations for most users. The tech dependency of virtual cards, although a drawback in some scenarios, is also a testament to the digital transformation shaping our financial transactions.

Virtual cards, therefore, embody the future of secure, flexible, and convenient payments. For businesses, embracing this technology means staying ahead in the digital curve, enhancing operational efficiency, and building stronger trust with customers. As we move forward, the continued evolution and adoption of virtual cards will likely shape the next generation of financial transactions, making them more secure, efficient, and user-friendly for all stakeholders.