Virtual credit cards

Check 2021: Fast & secure? Virtual credit cards explained simply: This is how they work!

What’s a virtual credit card?

The term “virtual credit card” is basically misleading in several respects. After all, this modern, digital product does not have much in common with a real credit card. First and foremost is the element that gives it its name: credit. A credit card grants its users a short-term loan, or advances funds until the – usually – monthly settlement is made via a linked account or the holder transfers the amount due to the bank. For this purpose, each credit card has a so-called drawing limit, which differs depending on the card operator or card type (e.g. Gold, Platinum, Business).

The situation is mostly different with virtual credit cards. Here, there is usually no drawing limit or advance from the bank. The cardholder must load the card with funds, and only those funds are then available for online purchases, for example.

Furthermore, the term “card” can also be confusing at first. This is because a virtual credit card does not come in plastic form. The card holder only receives the relevant data that is otherwise found on the familiar plastic cards:

  • Name of the card holder
  • Card number
  • Expiration date
  • CCV (verification number)

This is enough for quick shopping on the internet. Paying in stores or withdrawing money from ATMs will not work with it. You could also get into trouble when booking a hotel or rental car, as a real physical card is usually required locally, even if you book online. Read more pros and cons here.

Hence virtual (online) credit cards are (in most cases) rather digital debit cards or prepaid credit cards. The fact that the term “credit card” nevertheless seems to have prevailed here may be due, among other things, to the fact that this term, in contrast to “debit card,” is much better known. If you’re looking for a card provider it’s therefore advisable that you read their product information precisely so no misunderstanding about the card type and its functionalities occur.

What kinds of virtual credit cards are there?

Virtual credit cards can be divided into two use-types in the very first place:

  • Virtual credit cards for one-time use and
  • Virtual credit cards for ongoing/recurring use

But why should you use a card only once? The answer is as simple as it is obvious: to guarantee the highest possible security. When a card was used only once, it “destroys” itself after use. The purchase has been made successfully and the card data is invalid afterwards and cannot be misused. This type of use of virtual credit cards is an increasingly popular method for online purchases, especially when used in companies.

Virtual credit cards for recurring use, on the other hand, can be topped up with credit again and again, even automatically, so that they can be used continuously for online shopping. Another possible use is the processing of subscriptions or standing orders via such a card. Companies can process their software subscriptions or online tool subscriptions and thus immediately pre-account and allocate the costs clearly for preparatory accounting.

As with a classic credit or debit card, the card data always remains the same, so it is advisable to treat it just as sensitively as the data on a “real” card.

How to apply for virtual credit cards?

For private customers, there are numerous providers for virtual cards, such as Netbank, which issue virtual Visa or Mastercards.

Once you have chosen a provider that suits you, you first have to register and identify yourself, e.g. via your ID card using the ID-Ident procedure. In the next steps, you have to activate your new card via PIN and then load it with credit. Depending on the provider, this can be done quickly. And then you can go shopping.

The situation is a little different for immediate use in the business environment. In order for virtual or physical company cards to be issued to employees, the company must go through the so-called “Know Your Business” process (KYB for short). Here, a responsible person must answer a series of questions about his or her own business and thus verify his or her identity. Among other things, they are asked about the type of business, the industry, the shareholders and the most important financial figures. A similar process is followed by private customers, e.g. when opening a new bank account. The KYB process is a legally required measure to prevent money laundering and fraud.

Does a virtual credit card work immediately and is it secure?

Depending on the provider, a virtual credit card is immediately ready for use in the private sector as soon as you have loaded it yourself with funding from your own account. This is because no credit line needs to be applied for. In this case, the card provider does not even have to perform a credit check, since credit can only be transferred to the card from a funded account. Thus, there is no risk on the provider side and the process of card data generation is swift.  Nor is there any need to wait for a physical plastic card to be sent by mail.

In the business environment, the process is similar, but a little different: money must first be loaded into the so-called wallet, which is then accessed by all virtual company cards. However, the card issuer assigns budget limits for each card and, under certain circumstances, even its purpose. (E.g. a card with a budget of 250€ for office supplies).

This represents some of the reasons why virtual credit cards are becoming such a popular online payment method.

When it comes to security, virtual credit cards have a leg up on plastic cards. In the event of misuse, the maximum loss is limited to the amount of credit loaded onto the card – the account from which the credit was transferred cannot be debited. And even if you lose your wallet, you don’t have to think about blocking it – because there is no such thing as a plastic card.

Virtual credit cards: pros and cons for companies and employees

For use in the business environment, virtual corporate cards offer numerous advantages over the classic corporate credit card. The fact that companies in Europe have recognized this is shown by figures compiled by the London-based consulting agency RBR in a report: in 2019, around 43 billion euros were already transacted via virtual business cards in Europe, which corresponds to a share of around 12% of all corporate card spending.

It is for these and certain other individual reasons that virtual cards are so popular with companies:

  • Expenses can be better tracked because they can be directly assigned to a specific card and thus to an employee or department.
  • Furthermore, the annoying step involving the main holder of a classic company card is eliminated: A PIN is often required (via SMS) to confirm a payment, which is sent to the cardholder. If this is not available at the moment, this delays the purchase process immensely. With personalized virtual or physical cards, this pain point is finally history.
  • Department managers retain full control over all spending, as they can restrict virtual cards individually with limits and specific uses.
  • Purchasing requests via a virtual card, as offered by finway, can even reconcile budgets before the purchase is made.
  • Subscription management: Thanks to the ability to assign subscriptions to a specific card, companies get a much better overview of which (software) subscriptions are used by which departments. Unnecessary subscriptions can be identified in good time and cancelled if necessary. A software solution like finway also reminds managers when a subscription is about to be renewed, so that it can be cancelled or the subscription plan adjusted in good time if necessary.
  • Security: When virtual cards are issued for one-time use, misuse of the card information is virtually impossible. The data is destroyed after the purchase for which the card was created, making it useless.
  • There is usually no annual fee for virtual credit cards. This applies to any number of cards for single or multiple use.

As you can see, this type of corporate card makes things easier for the company and its employees, but it should be remembered that the payment options with virtual cards are more limited than with “real” cards for the wallet

  • Withdrawal of money from ATMs is not possible
  • Purchase transactions that may require the presentation of a real card (e.g. rental cars) cannot be made using virtual cards, even if the purchase is made online.

FAQs about virtual credit cards

What exactly are virtual credit cards?

Virtual credit cards, or better virtual debit or prepaid cards, are a means of payment specially developed for shopping on the internet, where only the data required for such a shopping trip, such as card number, expiration date and control number, are provided by a provider. Virtual credit cards do not require proof of Schufa, as they operate purely on a credit basis, which the owner loads from, for example, the checking account.

Who offers virtual credit cards? 

Numerous (online) banks offer virtual cards for private customers, but some startups have also built their business model around this means of payment. For businesses, various fintech startups have entered the market in recent years to simplify financial processes. A holistic solution that combines spend management and virtual cards on one platform is finway. (Sounds good? We’d love to tell you more! Book a demo, it’s free!)

Virtual credit card - Visa or Mastercard?

For shopping trips on the net, it doesn’t matter whether your virtual credit card is a Mastercard or Visa card. Most online stores accept both types of cards without any problems. However, there are minor differences between Mastercard and Visa when it comes to physical cards. Visa is the world’s largest credit card company, with Mastercard coming in a close second. There are then differences in the various card types, e.g. Gold or Platinum.

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