How do virtual cards work?

What to know about virtual debit, pre-paid, and credit cards.
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August 5, 2021
Pieces of a debit card falling into place like a game of tetris.

With the popularity of e-commerce, online banking, and digital wallets, consumers are no longer required to carry around a plastic card. Instead, they can use digital and virtual cards. 

The phrase “digital cards” refers broadly to non-physical cards that consumers can use online or in digital wallets on their phones. Virtual cards are a bit more specific. A virtual card is a unique card number that's generated in a digital format but is still associated with the user’s account. Virtual card numbers — sometimes called temporary or pseudo card numbers — can be offered as a feature of digital cards. 

Virtual cards use temporary or changeable numbers. These numbers may be attached to prepaid accounts that expire once a certain spend limit is reached, or temporary accounts that expire after a relatively short period; or they may mask permanent accounts for privacy and security purposes. 

One example of a digital card with virtual card number features is the Apple credit card. This Mastercard exists in Apple’s digital wallet, connected to a credit account. Users have the option of changing the card number without making changes to the account. The changeable card number acts as a virtual credit card.

Virtual cards can provide users with greater security with less disruption. If a normal debit or credit card gets compromised, the user may have to shut down the number and order a new card with a new number. If a virtual card gets compromised, the owner can change the number instantly; or if it is prepaid, whoever has the number will hit a spend limit, which can reduce the claim amount.

How do virtual cards work, in general?

Virtual cards are not physical cards. They can be attached to digital cards, physical cards, or both. They are often found in digital wallets. 

So how do virtual Visa or Mastercards work? They usually come with a mobile app that allows the user to control them. Some virtual card apps may allow the user to generate multiple virtual card numbers at once, or one virtual card number at a time, which the user can change whenever they want. The user may also be able to set expiration dates on card numbers, or pre-pay a virtual card and have it expire after the limit is reached.

Virtual cards are often used for online payments and e-commerce. For brick and mortar merchants to accept the cards, they either need to accept digital wallets such as Apple Pay and Google Pay, or they will need to be willing to manually punch in the virtual card number. 

Some virtual card services are multipurpose. Services like PayPal Key, Privacy, and Blur issue virtual numbers that can be used to mask multiple types of cards or accounts. For example, PayPal Key can be attached to a bank account, a debit card, a credit card, or a PayPal balance, and the user can even change the account to which the virtual card number is attached. 

Virtual card services may also have special features such as allowing the user to program a card to allow one transaction only, or lock a virtual card number to one retailer. For example, a customer could generate a card number just to pay for their Netflix account. 

There are also credit- and debit-specific virtual cards, and some credit and debit issuers offer virtual card numbers as a feature. 

How do virtual credit cards work?

Some credit cards offer a virtual card feature. The way this works is that the user gets a credit card, then activates the virtual card option. Depending on the provider, they will be able to change the virtual card number whenever they want, or they will be able to set an expiration date for the virtual card number, at which time a new number may be generated. 

Examples of virtual credit cards include:

  • Capital One Eno, a virtual assistant that generates virtual credit card numbers for customers
  • Apple card, a Mastercard credit card from Apple that allows users to generate virtual card numbers
  • Virtual account numbers offered for credit cards through Citibank 
  • Services that provide virtual card numbers that can be attached to credit cards or other forms of payment. 

How do virtual debit cards work?

A virtual debit card is a temporary or changeable card number attached to a debit or bank account. The idea is that the user can change the virtual number without having to open a new bank account or order a new debit card. Just like with a regular debit card, a virtual debit card pulls money directly from the user’s bank or debit account. As with all virtual cards, the ability to change the card number can add another layer of security. 

Virtual debit card numbers can exist as a feature on checking or debit card accounts, or they can exist as a separate service that offers virtual numbers to mask permanent cards. These services are usually not debit specific and will often provide numbers that a customer can attach to any card, and sometimes even to bank accounts. Examples include PayPal Key, Privacy, and Blur.

How do virtual prepaid cards work?

Virtual prepaid cards can come with several different features. Here are some examples:

  • Some virtual prepaid card services allow the user to put a certain amount of money on one or multiple prepaid virtual card numbers. Once the money runs out, the cards expire.
  • Other virtual prepaid cards will let the user continually reload a given virtual card number.
  • And some prepaid virtual card services have the user set up an account with the service, then allow the user to spend that from that account with whatever virtual card numbers they set up.

Examples of prepaid virtual cards include ePayService, Netspend, and US Unlocked. Virtual prepaid cards also include the subcategory of virtual gift cards, such as the Vanilla Gift Card

How do virtual Visa gift cards work? Or how do virtual gift cards work, in general? The person purchasing the card puts a certain amount of money on it (as they would a regular gift card.) Then the recipient will sometimes need to register the virtual card to their name in order to use it as they would any other virtual card. 

What fintechs should know about virtual cards

Virtual cards and digital cards are both cheaper, easier, and faster to issue than traditional physical cards, since they don’t require printing and mailing something to customers. This speed means customers can use their cards sooner -- usually immediately once they finish opening the account online.

Virtual cards also offer greater security, by allowing users to use temporary or changeable account numbers. This greater security can help fintechs build trust with customers who may be wary of working with a newer company with less history. 

Increased security can mean lower costs for the fintech supporting the virtual card if the virtual card number is compromised. This is because dealing with the compromised card may be faster and easier, and it also may be easier to prevent the card number from being used for many purchases. This increased security can also make your fintech a more attractive partner to banks, who are extremely concerned about compliance and security. 

What banks should know about virtual cards

Virtual cards are an easy way to empower your customers to use their accounts sooner, rather than having to wait for a card to arrive in the mail. Virtual cards — as well as digital cards more broadly -- also make it easier for your bank to get a foothold in digital wallets. Use of digital wallets is on the rise.

By creating changeable or fast-expiring card numbers, virtual cards also improve card security. If a virtual card number is compromised, your customer will be able to change the card number quickly without necessarily having to make other changes to their account, and without having to wait for a new card to arrive in the mail. 

The future of virtual cards

Use of digital wallets is increasing. This has been the case for years, though the COVID-19 pandemic accelerated the trend as e-commerce sales have grown

“Millennials are the ones leading the charge toward a cashless future. A report from Experian in 2019 revealed that 1-in-10 millennials use their digital wallet for every purchase. Pew Research also found that about 34% of adults under the age of 50 make no purchases in a typical week using cash,” reported CNBC in December 2020.  

As digital payments become more prevalent, people are looking for solutions that can make their payments more secure and also more private. Virtual cards work somewhat like chip cards, points out U.S. News and World Report. In both cases, the merchant gets a single or limited-use number, making it harder for anyone who might break into their system to fraudulently spend a customer’s money. 

Leading digital payments processors like PayPal and Apple Pay recognize the convenience virtual card numbers bring for consumers. Incorporating them into your fintech or bank offerings can give you a competitive advantage. 

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