Virtual Credit Card

Publication Date :

Blog Author :

Edited by :

Table Of Contents

arrow

What Is A Virtual Credit Card?

A virtual credit card, often referred to as a single-use card, is a digital payment method that provides a temporary credit card number for a specific transaction. Virtual credit cards are primarily used for online payments and serve as a secure alternative to physical credit cards.

virtual credit card

The application of virtual credit cards for businesses and consumers is widely spread. The main purpose of this card is to provide seemingly convenient, hassle-free digital payments without any physical existence. It acts as an add-on card to their primary plastic money. In addition, it makes it convenient and easy to use for consumers. Also, there is full-proof security while conducting these transactions. However, some restrictions exist, as virtual cards cannot be used anywhere. 

Table of contents

Investors seeking a comprehensive platform may consider Saxo Bank International for a variety of account types and investment options.

๐ŸŽ“ Unlock Expert-Level Investment Banking Skills!

Get unlimited access to the Investment Banking Mastery Program Certification Course Bundle a comprehensive package designed for aspiring investment bankers, finance professionals, and students. Learn financial modeling, valuation, M&A analysis, deal structuring, and more with hands-on case studies and expert-led video lessons.

Learn More โ†’

How Does A Virtual Credit Card Work?

Virtual credit cards are considered one of the safest payment methods. They provide a secure way for consumers to purchase with a single click on various e-commerce platforms. The concept of limited or single-use cards for businesses and individuals emerged in the early 2000s, with the credit card networks American Express and Discover being pioneers in this field.

The process of generating virtual credit card numbers can vary. Unlike physical credit cards, each virtual card number is unique to the specific merchant. For example, the virtual credit card number used for a clothing store purchase will differ from that used for a grocery store transaction. This uniqueness makes it more challenging for fraudsters to discover the card's identity. Additionally, since virtual cards are stored digitally on devices such as smartphones, the risk of physical theft is reduced. 

To apply for a virtual credit card, individuals can contact the issuer of virtual cards. Once the necessary Know Your Customer (KYC) and verification processes are completed, the card company or bank will issue the virtual credit cards online. Consumers can then use these credit cards to make online purchases and pay bills. Here are the steps to use a virtual credit card for a transaction:

  • Enter the virtual card number on the payment site.
  • Input the validity period and CVV of the card.
  • Request an OTP (One Time Password) on the registered phone number.
  • Enter the received OTP and submit the payment.

Single-use credit cards are connected to a physical credit card. In essence, they are a virtual form or replica of the primary credit card linked to the consumer's bank account. In addition, it's worth noting that virtual credit cards usually have a maximum transaction limit, which further helps mitigate the risk of fraudulent activities.

Investment Banking Mastery Program Certification Course Bundle
Unlock in-depth courses covering valuation, financial modeling, pitch books, deal execution, and more. Learn at your own pace through expert-led lessons and real-world projects designed to prepare you for a successful investment banking career.
Learn More โ†’

Examples

Let us look at some of the examples to understand them better:

Example #1

Suppose Sheldon wants to make some purchases online due to ongoing offers and discounts. However, he has a threat of fraudsters misusing his information and bank details. Therefore, he opts for a virtual credit card to make safe purchases. According to the instructions, Sheldon can use the credit card to make online purchases. However, this card has only single use with a limit the user decides. 

So, if Sheldon wants to buy an oven from Amazon, he gets a virtual card number (4000 **** **** ****) that can be used only on this site. Once an item is selected, enter the card number and OTP. Likewise, if he wants to shop on the e-commerce platform Shopify, he will get another card number (4210 **** **** ****). As a result, the details of Sheldon remain disguised (unknown). However, in the end, the postpaid amount will get deducted from his primary bank account. 

Example #2

According to a report, in 2021, the virtual credit card industry's global market will be $3.36 billion. As a result, it will reach 25.9% between 2022 to 2030. Likewise, another report states that Western countries and the African continent are the fastest developing market. In contrast, European, Russian, and associated countries have a larger market base.    

For efficient cross-border payments, many individuals and businesses use the Wise Money Transfer UK or Wise Money Transfer US services for transparent and low-cost transfers.

Benefits

Let's explore the advantages of using a prepaid virtual credit card for businesses and consumers:

  • Reduces Unnecessary Costs: Virtual cards help cut costs. From a business perspective, there is no need for paper receipts when individuals make purchases at physical stores. With virtual cards, online stores generate electronic bills, reducing paper waste. Moreover, the issuance cost of these cards reduces as the verification process takes place online.
  • Increases Cash Flow: Virtual card availability encourages consumers to use them, increasing online spending. This benefits the card issuing company and merchants by generating a steady cash inflow.
  • Easy Mode of Payments: Single-use credit cards enable convenient online payments, eliminating the need to stand in long queues. This makes it easier for individuals to purchase items.
  • Maximum Security and Privacy: They offer enhanced security. They are designed for single use, meaning they have a one-time validity only for a specific merchant. If the buyer purchases from another store, the card number will change. This helps ensure the safety of user details. Additionally, users can freeze the card for added security.
  • Cost-Cutting and Flexible Limits: Individuals can set their credit card limits to manage their budget effectively and reduce unnecessary business expenses.
  • Rewards and Cashbacks on Purchases: Owners of prepaid virtual credit cards can earn various rewards and cashback for their purchases.

Virtual Credit Card vs Physical Card

Although consumers use both types to make instant purchases, they have differences. Let us look at them:

BasisVirtual Credit CardPhysical Card
MeaningA credit card has its existence in the digital space (in online mode).A physical card is a plastic card used in debit and credit transactions.
PurposeTo make credit payments securely in the online mode.To make offline (in-store) transactions hassle-free.
Application or UsageOnly in online stores and e-commerce sites.Both physical and online stores
ExpirationFor one to two daysPhysical cards are valid for a few years.
FeesUsually, no fee is chargedA fee is involved during transactions.
Number of transactionsIndividuals can incur only one transaction. It can be unlimited until the limit crosses.  

Want a smarter way to bank on the go? Revolut offers a user-friendly app with global access, crypto and stock trading, and innovative budgeting toolsโ€”all in one powerful platform.

Disclosure: This article contains affiliate links. If you sign up through these links, we may earn a small commission at no extra cost to you.

IB Course.png

Frequently Asked Questions (FAQs)

1. Are virtual credit cards legal?

Yes, this type of virtual card is legal. Banks and financial institutions offer them as a secure form of payment for online transactions, adhering to relevant regulations and laws.

2. Can a person get a refund from a virtual credit card?

Yes, a person can generally receive a refund from a virtual credit card. However, the refund process would depend on the policies of the card issuer or the merchant from which the purchase was made, similar to refunds with physical credit cards.

3. Can virtual credit cards be tracked?

It can be tracked to some extent. The transactions made with virtual cards leave a digital trail that can be monitored by the card issuer and potentially tracked by authorized parties for security and fraud prevention purposes. However, the specific level of tracking would depend on the card issuer's policies and the applicable laws in the jurisdiction.