What is a virtual card?

6 mins read
Businessman pressing virtual credit card sign
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A virtual card’s properties are similar to your everyday credit/debit card. They come with a unique 16-digit number, expiration date, and CVV code. The virtual card is created using software that will randomly generate these details for you. It will then link the virtual card to your physical credit card.

Virtual cards are able to make online purchases in the same way that your credit/debit card works. You can use it for one-off purchases, online subscriptions, and automatic monthly/yearly payments. Once the virtual card is generated, you can use the information given by that card instead of the real details on your physical credit card to make your purchases. The transaction will appear on your bank statement as if you had used your regular credit card details.

This will mask your actual credit card details, ultimately decreasing your vulnerability to information theft. The virtual card acts as a layer of protection between the funding source (your credit card) and the merchant who receives the payment.

Virtual cards can be a prominent asset for your business as it has many features that can help improve the way it is run. There are many advantages to using a virtual card. Let’s talk about them.

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Photo by Petter Lagson on Unsplash

Virtual cards save you time

When running a business, using a credit card to make purchases/payments is almost unavoidable. However, this process is not streamlined enough to be quick, efficient, and accurate. With many employees and merchants to work with, there are always times when payments get delayed, mistakes happen, and reconciliations need to be made. 

When multiple employees are in charge of making payments, it can sometimes be difficult to track who made which payment. If a mistake occurs or a merchant complains, it can end up taking a lot of time tracking down who made the mistake and from which card. Since using a credit card is almost a daily activity, this would mean manually sorting through many days of information to find what you need.

With a virtual card, you will be able to keep track of all your transactions automatically. When a payment or purchase is made, the receipt will be collected and documented automatically so that you have proof of every transaction. With the reporting features that come alongside virtual cards, it is a simple matter of reviewing this data to find any specific transaction you want.

The reconciliation of your accounts is crucial for running a healthy business. Virtual cards have automatic reconciliation features that check every transaction against your bank account to ensure that it is valid. Now you don’t have to spend more time and manpower cross-checking all your transactions every month. You can instead use this time to improve other aspects of your business.

Financial transactions are a big part of everyday business and a virtual card will help save you a lot of time with its automatic reconciliation and reporting features.

Virtual cards save you money

Due to the large number of transactions happening every month, there is a high chance of going over the budget set for the month and overspending. With a credit card, it is much harder to set a specific limit for each department and then ensure that no amount is spent above that limit. As such, a business’s profitability can be affected through excessive spending. Another department would need to compensate for the money spent in the over-budget department, throwing your accounts and monthly budget planning for a loop. 

With virtual cards, you can all but eliminate the chances of overspending in any department. Here’s how:

Set a spending limit

Any virtual card that you create can have a specific spending limit attached to it. This means that the card cannot be used to make purchases above that specific amount. For example, a $1,000 limit can be set on multiple virtual cards and given to the relevant departments. Any purchase above the $1,000 value will not go through. 

Set an expiration date

When generating the virtual card you can set a custom expiration date after which the card will not work. This is great for one-off projects or contracts as the card can be set to expire on the day the project or contract ends. This way there won’t be any chances of money being spent from that card, even if it is below budget, once the project is completed. 

Plan your budgets

You have the ability to create a virtual card for every vendor and/or major project your business has. This makes planning budgets much easier because you can put a limit and expiration date on each one of them and not worry about going over that budget. It will also help reduce the chances of accidental or fraudulent spending through the virtual card once its use is complete.

Virtual cards reduce your risk of fraud

If a business uses a credit card that is shared among a number of employees, there is a much higher chance of this information being stolen or fraud being committed using the card. With many employees using the card, the chances of falling for schemes such as Skimming or Cloning can occur easily. For example, when taking clients out for lunch, you hand the card to the waiter to pay for the bill. This offers them an easy way to clone the card data.

Even if the card is only being used to make purchases from registered merchants, the details can be stolen if the card was used at a POS system that was hacked or compromised. Therefore, using a company credit card can be dangerous and can cost the business a lot of money in the wrong hands.

Using a virtual card can reduce these risks drastically. Here’s how:

Mask the original card number

The virtual card will randomly generate a 16-digit card number that you can use instead of the numbers on your original card. This random number is what will be used in all transactions, thus protecting your original details from being misused.

Link the card to one specific merchant or service  

You can set a virtual card to be used with only one merchant or recurring purchase. This way, the card will not work outside of these transactions, effectively eliminating any chance of fraud taking place.

Isolate the fraudulent transactions

If you create a virtual card for every merchant in your business or for every major transaction you make, you can easily identify in which virtual card account the fraud took place. You can then stop any further transactions using that card.

Freeze your card at any time

If you think that some fraud is taking place or that your details were compromised, you can easily freeze all of your virtual card accounts. This will stop all further transactions from taking place while saving your original card details from being stolen.

Virtual cards give you more control

With a regular credit card, you can only do one thing – use it to make purchases and payments. Depending on the card you use, you can also set spending limits, but this is not the case in most business credit cards. You don’t have much control over how the card is used.

On the other hand, a virtual card offers you a lot more control over the way it is used. You are able to:

  • Create a virtual card at any time with no hassle
  • Set any spending limit
  • Set a custom expiration date
  • Assign a card to any single transaction or merchant
  • Freeze the card at any point
  • Get alerts for every transaction immediately
  • Track any transaction and isolate any fraud taking place

You will not be able to have all these features with a regular credit card. Any modifications you want to make to your credit card or account will involve having to go through the bank and its agents which is going to take up a lot more time.

For example, if you have monthly or yearly subscriptions to pay and you want to discontinue one of them, you will have to get in touch with the bank who will cancel it for you. However, with virtual cards, you have more control over managing these as each subscription can be linked to a different virtual card. This way, you won’t be charged accidentally or pay for a subscription you no longer need.

Virtual cards are the way of the future

As technology improves, the way we do business changes along with it. In the same way that credit and debit cards replaced cash transactions in business, virtual cards are on track to replace credit cards. 

The way the world is now, everything is moving to the digital front. Everyone is looking for a way to improve the way they do business using digital means, and in the case of using credit cards, virtual cards are the way to go. 

We have seen a rise in contactless payments over recent years. With the advancement of NFC technology, every day more people are switching to making payments using mobile devices and other digital means. When you account for the global pandemic that has changed the way we usually do things, contactless payments are becoming more of a set reality in the upcoming future.

 

A virtual card can be used to make online purchases and even assigned to your digital wallet for offline purchasing. With the added benefits of improved protection and other features that are not present in modern credit cards, virtual cards are a means of paving the way to a future of contactless payments.

Credit cards are an important tool that a business uses. However, it comes with a lot of security concerns stemming from improper use, mishandling, and data breaches. As technology evolves, so do the methods used to steal and misuse credit card information. 

In a world where going digital means a higher chance of success for businesses, proper care should be taken to ensure that you don’t face fraud and information leaks that can damage the profitability and safety of your business. Virtual cards offer an efficient and simple solution to improve the level of protection your payment infrastructure currently has. 

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