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- A virtual credit card replaces your regular credit card number when making a purchase.
- Using a virtual credit card can protect your financial information from fraudsters.
- A downside for merchants is that virtual credit cards can make it harder to identify customers.
If you've ever lost your credit card and worried about someone using it, or found unexpected charges on your bill while the card's still in your wallet, you're not alone. Almost half of American adults have experienced credit or debit card fraud, according to Security.org.
Since this problem likely won't disappear anytime soon, it might be worth taking the extra precaution of using a virtual credit card to obscure your real card number whenever you make an online, or even in-person, purchase.
What is a virtual credit card?
A credit card is identified by a permanent 16-or 15-digit number. Maybe you've memorized it to the point where you can type those digits in when shopping online, or perhaps you have that information saved with a retailer for easy checkouts.
A virtual credit card consists of a new set of numbers tied to that original credit card that you can enter whenever you're asked for your credit card information when making a purchase.
If someone gets your regular credit card information by hacking a retailer, for example, they might use it fraudulently as many times as possible. But with a virtual credit card, there's a layer of separation that can protect you. A virtual credit card number can be set up for a certain number of uses, only allowed at particular stores, or limited to a specific dollar amount.
Even if the virtual card doesn't have these guardrails in place, you could potentially freeze a virtual card if you suspect fraud while keeping your original card number in use.
Plus, virtual credit cards can help you maintain more privacy from merchants, as they're not seeing your regular credit card number. Each time you purchase from a retailer, you might be using what looks like a different credit card.
Virtual credit cards have "become more popular, not only because e-commerce has become more popular over the last few years, but primarily because of more privacy concerns or security concerns from consumers," says Kevin Lee, vice president of trust and safety at Sift, a startup that helps businesses manage online security.
How does a virtual credit card work?
One way to get a virtual credit card number is to generate one via your credit card issuer. Not all credit card providers offer this, but if you log into your credit card account, you might see an option to enroll and create virtual credit cards. The same can also be true for debit cards, where your bank might offer options to create virtual cards online.
Your credit card issuer might have tools like browser extensions or apps that you can use to generate new virtual credit cards, often for free.
Sometimes you'll have the option to generate one-time use virtual cards, and other times you might create virtual cards that can be used indefinitely. Much depends on the issuer and your own use for the card.
If you use Apple Pay or Google Pay, you may already be using a virtual credit card. To use these digital wallets, you have to first enter your regular credit card number (or perhaps a virtual card that you generated via your credit card issuer). Then the wallet automatically provides merchants with a tokenized version of your card.
"When you tap to pay the merchant, they're not receiving your actual 16-digit credit card number," explains Lee. "They're getting a tokenized credit card number, which is basically a virtual credit card number. And that certainly [provides] a high degree of security and convenience for a consumer."
The same applies to click-to-pay options via providers like Visa and Mastercard. In general, says Lee, "digital wallets use tokenized/virtual cards by default," but you can check with wallet providers or sites that store your card to confirm whether they're using the regular credit card number or generating virtual ones.
Virtual credit card pros and cons
Virtual credit cards have many advantages for consumers in terms of security and privacy. Businesses can also benefit from providing employees with virtual cards rather than physical ones.
However, there are also some potential drawbacks, like having to go through a few extra steps to generate a virtual credit card when making a purchase. And even though they tackle some other security challenges, virtual cards can introduce new fraud concerns if someone hacks your account.
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When to use a virtual credit card
Virtual credit cards have many different use cases for both individuals and businesses. That's because you're generally not creating new lines of credit — which require a credit check and may ding your score — you're just creating new numbers, explains Laurens Eckelboom, chief commercial officer at Tappit, a cashless payments system.
"The services around virtual credit cards are more advanced, and there's more stuff that can go wrong with physical credit cards, like losing them or using them for stuff they're not meant for," Eckelboom says.
Some examples of virtual credit card use cases include:
- Shopping online: If you're worried about cybercriminals stealing your credit card data, you might use a browser extension or app that lets you generate one-time virtual credit cards for each e-commerce transaction.
- Tap to pay: When shopping in physical stores, you can use tap to pay technology that essentially relies on virtual credit cards. For example, at the grocery store you might use Apple Pay or Google Pay, which then gives that grocery store tokenized information, not your real credit card number. Or, you might have a physical credit card that you can tap to pay, which also generates a token.
- Managing employee credit cards: Rather than sending all employees physical credit cards for work expenses, you could provide virtual credit cards for both convenience and control. For example, a marketing team might receive virtual credit cards that can only be used for specific types of purchases, and the finance team can get direct insight into those transactions so that there are no surprises, explains Eckelboom.
Overall, virtual credit cards are part of a growing effort to enhance credit card safety. While there are some potential pitfalls, especially for merchants, they can help protect consumers. At the same time, they're helpful as an organizational tool, such as for businesses that want to give more employees access to the company credit card without giving them free rein.