Virtual Credit Cards: What Are They?

You have likely heard the term, “virtual credit cards” buzzing around lately. In a world of credit card fraud, virtual credit cards provide greater protection than using your actual credit card. Virtual credit cards also mean that you can issue virtual credit cards to employees and family that need a credit card for a one-time expense, or you simply want to share your credit line with someone.

Some credit card issuers such as Chase Bank and Capital One have started issuing virtual credit cards upon request. There are also numerous third-party companies that also offer virtual credit cards. A virtual credit card is a unique, virtual card number that links to your actual credit card account. Using a virtual credit card helps protect users against fraud when shopping online or by phone. Another benefit of using a virtual credit card is the protection it offers in the case of a data breach such as those experienced by Target, Home Depot and Marriott in the past. Your real credit card number is never exposed to the merchant. As far as accepting a virtual credit card for payment, merchants need not take any special action or treat them differently than any other credit card payment.

Virtual credit cards allow you to transact on your main credit card account without using or exposing your main credit card account number. Virtual credit card numbers allow you to limit a virtual credit card number for use at a single merchant as well as defining spending limits or even invoking an expiration date for the virtual credit card. You can lock or delete a particular virtual account number on demand.

The Benefits

The main benefit of virtual credit cards is the ability to quickly close and lock down the account. If your main account number is exposed in a data breach you would need to have a new card/account number issued. That can become a bigger problem if your real card number is attached to recurring payments such as your cable service, pest control and other vendors that you’ve set up recurring monthly payments with using your real card number. The use of virtual credit card numbers for these accounts saves you the hassle of tracking down and updating all recurring payments charged to the card exposed in a breach. Additionally, if you need to give an employee a credit card for incidental online purchases, you can set a spending limit and even specify that the virtual card is only good for payments with a specified merchant.

The Liability

No matter what type of credit card you use, The Fair Credit Billing Act limits your liability for unauthorized use of any credit card to just $50. However, the limit can be as low as $0 based upon your card-issuer.

To ensure you aren’t responsible for any unauthorized charges, you must notify your credit card issuer if you lose your card or it is stolen — before any unauthorized charges are made on the card. If you do this before any unauthorized charges are made, your liability will be zero. Additionally, you aren’t liable for unauthorized use if just your credit card number itself is stolen.

The Downside

Returning goods that you purchased online to a physical location could become a challenge if you completed your purchase with a virtual credit card. Some merchants require you to insert or swipe the card you used for the purchase to process your refund back to your card. If you are a merchant, you can and should manually key in the virtual card number for the refund/credit. If you can not do this, another solution is to issue a gift card for the same amount as the return. Note that credits could take longer to post to your actual account depending on who provides your virtual card numbers.

While you have the ability to charge recurring payments to a virtual credit card, remember that virtual credit cards have expiration dates set by the user. If you have a monthly subscription that expires in December and you set an expiration date for October, your subscription may be canceled when the monthly charge fails to process in November.

The Takeaway

Virtual credit cards give you peace of mind when making purchases online or on the phone. Should your virtual credit card number get compromised, you can quickly delete it or lock it down with the click of a mouse. You can always continue using your main credit card. If you have concerns about your card data being exposed in a data breach, you’ll appreciate the extra measure of protection virtual credit cards offer.