Explained: How virtual credit cards work

Unlike their physical siblings, virtual credit cards exist solely in the digital realm, offering a unique set of advantages in terms of security and convenience.

Lucie Fonseca

Despite the convenience credit cards and online purchases offer, there are significant risks associated with using cards online. For example, each time we enter the card details on a retail payment page, it exposes us to potential data theft via different avenues, including rogue merchants, malware, compromised Wi-Fi networks, data breaches, and more.

These vulnerabilities can lead to theft, impersonation or the basic inconvenience of having to block and replace compromised cards. However, credit cards have become more ingrained in our daily lives as numerous statistics show. As reported by dropshopping app Oberlo, the count of digital buyers stood at 2.64 billion in 2023, which is 33.3 percent of the total world’s population. India is no exception with an annual online shopper projection of 425 million by 2027, according to Statista.

In a world where digital payments and online shopping have taken precedence over cash transactions and brick-and-mortar shops, the requisite for secure payments is a crucial one, indeed. Some of the key factors that are driving this change are digital transformation of economies, shifting consumer behaviour, accessible data connections and the widespread adoption of smartphones.

Also read: RBI proposes card-on-file tokenisation: Tighter security, more convenience for customers

Therefore, in a bid to safeguard information and still enjoy the befits of safe and secure online shopping, virtual credit cards serve as a viable solution.

Defining virtual credit cards

These are digital counterparts of traditional credit cards. Unlike their physical siblings, these cards exist solely in the digital realm, offering a unique set of advantages in terms of security and convenience. Just like any regular card, a virtual card has a card number, expiration date and CVV code. But it doesn’t have a physical card body. It is linked to a real credit or debit card. It provides an additional layer of security by avoiding the disclosure of the real card data at the time of payment. The consumer enters the virtual card data in the retail payment page and the mapping to the real card data is done by the issuing bank or a payment service provider.

Enhancing security via temporary validity or single-use feature

Temporary virtual cards are one of the most common types of virtual credit cards. They are either valid for a single transaction or a limited period. While shopping online, the consumer can obtain the details of these temporary virtual cards via mobile banking or internet banking to carry out the transaction. In an event where the information is compromised, the potential damage to the cardholder is minimal.

Better controls and limits to minimize fraud

Another advantage of the virtual credit card is that it empowers the cardholders with advanced transaction controls and limits. For example, by limiting the number of transactions, defining usage times, restricting domestic or international usage, or even specifying a particular category of merchants or a specific merchant. All these measures protect the virtual cards against misuse and reduce the risk of significant financial loss, even in the event of a breach without affecting the real card behaviour.

Delegating payments

Beyond personal use, virtual cards also offer a unique advantage in sharing virtual card details with third parties and delegating online purchases without exposing the real card details. This is advantageous in case the third party has malicious usage intention or is not careful enough in the usage of the card.

A secure online shopping experience

In a world where online shopping is ubiquitous, virtual cards are a viable tech solution, providing a secure and seamless shopping experience. By enhancing security via short-term validity, better controls to minimise fraud and delegating payments without exposing sensitive card information, virtual credit cards empower users to navigate the digital landscape with confidence, mitigating the risks associated with online transactions.

(Lucie Fonseca is global head, R&D, Giesecke+Devrient, a global security technology company that works in the area of finance and currency.)