What is a virtual credit card?

The term “virtual credit card” is actually misleading in several ways. This modern, digital product usually doesn’t have much in common with a real credit card. First and foremost, 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 billing is made via a linked account or the owner transfers the amount due to the bank. For this purpose, each credit card has a so-called credit limit, which differs depending on the card operator or card type (e.g. gold, platinum, business).

Things are often a little different with virtual credit cards. There is usually no credit limit or advance from the bank. The cardholder has to top up the card with credit and only this is then available for online purchases, for example. Alternatively, as with a debit card, a linked account is immediately debited – this model is also available on the market.

At least that’s how it looks with many providers, even though they advertise with the term “credit card”. Nevertheless, there are also actual credit cards on a virtual basis. These then also have a credit limit set by the bank, as is the case with the well-known plastic credit card. This option is mainly found in the business environment, but most offers for private customers are prepaid or debit cards.

Furthermore, the term “card” can be confusing at first. 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 owner
  • Card number
  • Expiry Date
  • CCV (check number)

That’s enough for a quick purchase online. You can’t use it to pay in a store or withdraw money from an ATM. You could also run into problems when booking a hotel or rental car, as a real physical card is usually required on site, even if you book online. Read more advantages and disadvantages here .

Virtual online credit cards are therefore mostly digital debit cards or prepaid credit cards. The fact that the term “credit card” seems to have prevailed here may be due, among other things, to the fact that this term is far more familiar in everyday German language than “debit card”. So read carefully what the respective provider offers so that there are no misunderstandings.

What types of virtual credit cards are there?

Differentiation by type

Let us try to clear up any possible confusion once and for all and briefly summarize all known card types on a virtual basis.

Virtual credit cards : means of payment with a credit limit. As with a classic credit card, you have a means of payment with which your bank grants you a short-term loan. All expenses that you make over the course of a month are debited from the account linked to the card on a specific date.

Virtual prepaid card : means of payment which you can top up with a credit of your choice before use

Virtual debit card : A means of payment linked to your account. All expenses you make with it are immediately debited from your account.

Differentiation according to use

Virtual credit cards can primarily be divided into two types of use:

Virtual credit cards for single use and
virtual credit cards for multiple use

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

Virtual credit cards for multiple use can be used for online shopping on an ongoing basis. Another possible use is to process subscriptions or standing orders using such a card. Companies can process their software subscriptions or online tool subscriptions using such a card and thus immediately pre-account and allocate the costs clearly for preparatory accounting.

The card details always remain the same as with a classic credit or debit card , so it is advisable to treat them as sensitively as the data of a “real” card.

How to apply for virtual credit cards?

Private customers

For private customers, there are numerous providers of virtual credit and debit cards, such as Netbank , which issues virtual Visa or Mastercards.

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

Business customers

The situation is a little different when it comes to immediate use in a business environment. In order for virtual or physical company cards to be issued to employees (regardless of whether they are credit, debit or prepaid), the company must go through the so-called “Know Your Business” process (KYB for short). Here, a person responsible must answer a series of questions about their own business and thus verify themselves. Among other things, they will be asked about the type of business, the industry, the shareholders and the most important financial figures. You also go through a similar process as a private customer, 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 card work immediately and is it secure?

Depending on the provider and card type, a virtual (debit) card is ready for use in private life as soon as you have topped it up with credit from your own account. There is no need to apply for a credit limit. In this case, the card provider does not even have to carry out a Schufa check, as credit can only be transferred to the card from a covered account. This means there is no risk on the provider side and the process of generating card data is quick. Nor do you have to wait for a physical plastic card to be sent by post.

In the business environment, things work in a similar way, but a little differently. Here, too, we have to differentiate according to the type of card.

  • If virtual prepaid cards are used, money must first be loaded into a so-called wallet, which all virtual company cards can then access.
  • Debit cards must be linked to a company account, which the card accesses and debits in real time
  • For credit cards, an account must also be deposited, but the money is not withdrawn immediately but only on a specific date each month.

The following applies to all options: The card issuer can set budget limits for each card and, in some cases, even its intended purpose. (E.g. a card with a budget of €250 for office supplies). This is one of the reasons why virtual credit cards or debit cards are becoming such a popular online payment method.

When it comes to security, virtual cards have a number of advantages over plastic cards. In the event of misuse, the maximum damage that can occur is the amount of the credit that has been loaded onto the card – the account from which the credit was transferred cannot be debited. And if you lose your wallet, you don’t have to worry about blocking it – there is no such thing as a plastic card.

Virtual credit cards: advantages and disadvantages for companies and employees

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

For these and certainly other individual reasons, 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 that involves the main holder of a classic company card is eliminated: To confirm a payment, a PIN (via SMS) is often required, which is sent to the cardholder. If the cardholder 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 individually restrict virtual cards with limits and specific usage options
  • By making purchase requests via a virtual card, such as the one offered by finway, budgets can even be reconciled 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 canceled if necessary. A software solution such as finway also reminds those responsible when a subscription is about to be renewed, so that it can be canceled on time or the subscription plan can be adjusted if necessary.
  • Security: When virtual cards are issued for one-time use, misuse of the card information is almost impossible. The data is destroyed after the purchase for which the card was created and is therefore useless.
  • Virtual credit cards usually do not charge an annual fee. This applies to any number of cards for one-time or multiple use.

As you can see, this type of business credit card makes things a lot easier for the company and its employees, but it should not be forgotten that the payment options with virtual cards are more limited than with “real” cards for your wallet.

  • Withdrawing money from the ATM is not possible
  • Purchases that may require the presentation of a real card (e.g. rental cars) cannot be covered by virtual employee credit cards, even if the purchase takes place online.

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