(833) 262-7801
Coast Logo
Expense Management For Small Businesses

Virtual Credit Cards: Definition, How They Work, And Benefits

A virtual credit card can help your business make digital payments with less worry about security, spending controls, and administration. Find out how.

virtual credit card

The convenience of e-commerce has made it an essential tool for both personal purchases and business transactions. But digital payments can also present unique challenges to businesses around spending controls, expense tracking, and security. Virtual credit cards can help allay some of these challenges when used effectively.

Table Of Contents

Why Are Virtual Credit Cards Gaining Popularity?

Woman registering a virtual credit card

Because businesses are now doing a majority of their purchasing online for necessary supplies and services, new complexities have been added to managing corporate credit card accounts.

For example, it’s convenient to use a company card to pay for the business’s subscription to a service or app, but storing credit card info can make it easy to overlook a sudden change in the subscription price.

As online credit card purchases proliferate, businesses have to pass around cards or issue cards to more employees. This can make it difficult to control spending.

If company credit card info is exposed in a data breach, the lost productivity of cleaning up the mess will be costly, even though the business will eventually get money from fraudulent purchases back.

Virtual credit cards offer businesses an effective solution to all of these concerns.

What Is A Virtual Credit Card?

In the traditional sense, a virtual credit card is a temporary, disposable credit card number used for making purchases online. A randomly generated account number, security code, and expiration date are used to process the payment, and the purchases appear on your account statement as normal.

Now, however, this kind of card doesn’t have to be temporary, and it’s not only used for online purchases. A modern virtual credit card is stored on a mobile device and can be used to pay for purchases or services online or contactless in stores. It has a card number, expiration date, and security code.

How Virtual Credit Cards Work

online shopping cart

For in-person purchases, most credit cards now come equipped with a security microchip. This chip generates a unique code for each purchase that can’t be used in the future and prevents thieves from saving your card data and using it for fraudulent purchases.

A virtual credit card applies the same basic principle to online purchases by using unique payment information for each transaction.

This helps keep your company safe from fraud because if the merchant or service provider suffers a data breach, the thieves will only be able to access the “throwaway” information and not your real card information.

Who Offers Virtual Credit Cards?

Some major credit card companies now offer the ability to create virtual credit cards as a benefit for their customers. So, if you’re interested in getting a virtual credit card, it’s worth seeing if an institution you already have a relationship with offers virtual cards as a feature for its customers.

That said, the value of virtual credit cards for businesses has led to a number of companies offering credit lines and introducing virtual credit card systems that allow companies to more effectively and safely manage expenses.

Benefits Of Virtual Credit Cards

Using a virtual card for your business’s online purchases offers several advantages depending on the specific features of the card you choose. Let’s take a look at some of these benefits.

Security

Security Benefits Of Virtual Credit Cards

As already discussed, security is the main appeal of using a virtual card. It obscures your company’s critical payment information and compartmentalizes the damage done if an online retailer you buy from suffers a data breach.

Since a hacker will only gain access to the virtual card info used for the particular merchant they attacked, they’ll be unable to make fraudulent purchases elsewhere. And you won’t have to spend time changing card details saved on many different sites if a card is compromised.

Virtual credit cards are worth trying for many users for the peace of mind they bring alone.

Control

Another possible benefit is setting controls on different types of spending. With virtual cards, you may be able to set a per-transaction spending limit for each virtual card.

This feature allows you to set up a virtual card with a spending limit to pay for a certain subscription service and be protected from “statement shock” if the monthly cost goes up without you realizing it.

It also allows employees to cover minor expenses, like parking fees, without worrying about larger, unauthorized purchases.

Expense Tracking

Woman checking virtual credit card expenses

Reviewing and reconciling credit card purchases can be a major source of administrative work for many businesses. Virtual credit cards can help by greatly simplifying the process of managing expenses.

Creating virtual cards for specific purposes and setting rules for transaction amounts can effectively automate some of the data entry involved in tracking your business expenses and prevent unexpected, over-budget spending.

For Online And In-Store Purchases

As we mentioned, because virtual credit cards are stored digitally, they can be used both in person and online. This makes them beneficial for most types of businesses and their buying needs.

Limitations Of Virtual Credit Cards

Although these cards can be very useful for anyone who wants to shop more securely, they serve specific purposes and aren’t useful in every situation.

Female traveler with baggage walking to hotel check-in counter.

Keep in mind that using a virtual credit card might lead to problems in situations where online purchases lead to in-person interactions with retailers.

For example, many hotels require the card used for a reservation to be shown at check-in. This presents an obvious problem if a virtual credit card was used to book the stay.

A similar difficulty can occur if you buy something online and then need to return it in person. The standard way of processing a refund at many retailers is to have you insert or swipe the card used for the purchase. If a virtual card was used, you may have to settle for store credit.

How To Pick A Virtual Credit Card

Maybe by now you’re convinced that a virtual credit card is a solution to your security worries or administrative hassles, and you want to get one. Here are some factors to consider when picking which card best fits your needs.

Number Of Cards Issued

Some virtual credit cards have a cap on how many unique virtual cards can be issued (e.g., a certain amount each month). For personal users, this is unlikely to be a serious problem, but it could become an inconvenience for businesses.

If you’re considering a virtual credit card for your business, realistically assess how many you will need to make sure you don’t run up against a limit.

Fees

Before getting a virtual credit card, thoroughly review any fees associated with its use, just like you would if you were applying for a new traditional credit card.

Although security rather than savings may be the main appeal of a virtual credit card, you don’t want to sign up for a card with fees that will throw off your bottom line just because of its virtual card features.

Spending Controls And Tracking

If all you want from a virtual credit card is the ability to protect your personal information while purchasing online, in-depth options for configuring different virtual cards won’t really interest you.

If you want to set up many different virtual cards for different types of spending or recurring charges, then you’ll need more robust controls.

When considering a virtual card, research the options available for setting limits on the amount and frequency of transactions. This will ensure virtual cards are actually helpful for managing cash flow and expense tracking.

Integrations

If you’re hoping to use virtual credit cards to reduce administrative hassles for your business, you’ll want to consider how the card integrates with the processes and tools that you already use for managing budgets and tracking expenses.

The Bottom Line

Man happy to use his virtual credit card

Using digital payments offers significant advantages, but businesses must ensure that purchasing for business needs both online and in person doesn’t compromise budgets or security or add administrative overhead. More and more companies are turning to virtual credit cards as the solution.

Although virtual credit cards are often explained primarily as a tool for protecting against fraud, they also have other important benefits, like managing recurring expenses and preventing overspending. These benefits can be especially helpful for businesses.

If you’re looking for other ways to control expenses and streamline administration, such as better managing fuel and maintenance expenses for company vehicles, check out CoastPay.com.