Even though the concept of virtual credit cards is not new to this world, it has evolved significantly in the past 2 years. Fintech companies made issuing a virtual card equal to a click of a button and introduced virtual cards for a wide variety of use cases.
At the same time, Apple and Google introduced their own digital wallets. So the laundry list of terms attached to virtual cards just exploded – from single-use cards to prepaid cards to tokenized cards to digital wallet and so on.
At Payhawk, we often receive a lot of questions from customers about what virtual cards are, how they are different from physical cards, and whether you can use them with Apple Pay.
To demystify the subject, we recently invited Clive Cornelius, Head of Travel Segment Visa Europe for a webinar where we explained the subject in length. If you don’t have time to watch it, here is a summary of the most frequently asked questions in regard to virtual cards.
What is a virtual credit card?
A virtual card is any card issued by a major card network that doesn’t have a plastic equivalent but has a credit card number, a cardholder name, an expiration date, and a security code. It can be used to pay everywhere where cards are accepted. Virtual credit cards are issued by neobanks or a fintech company with a single click and offer a variety of controls and settings. They are often tied to a company bank account with its own IBAN that can be loaded with a bank transfer.
Types of virtual credit cards
Single payment virtual cards – Single virtual cards are used for single payments. They are usually created as one-off purchase requests by employees. Since these cards were initially created for gift cards, they are the least flexible for business use as they are loaded once. This becomes a challenge when you want to get a refund or money back from a merchant as the card is disposed of once the money is spent. Also, you should always load more money than you plan to spend as there might be some merchant fees or exchange rates that can prevent you from paying.
Virtual cards connected to an existing card – Some banks and fintech companies offer the ability to create a number of virtual cards connected to existing cards. Starling Bank recently introduced such cards in the wake of the COVID-19 crises that allows “cloning” of an existing credit card for the purpose of giving it to friends or family members who might assist with shopping. The downside is that they are tied to a single balance which might dry up without the ability to allocate a dedicated budget for such cards.
Our choice: Virtual cards with dedicated balances – Virtual cards that can be standalone and have their own balance are the most flexible on the market. At Payhawk, we decided to issue Visa virtual cards that have their own balance, so that finance teams can allocate budgets on cards dedicated to, for instance, marketing spend on Facebook or Google, engineering hosting on AWS or Google Cloud or sales tools such as Zoom, LinkedIn.
Benefits of virtual cards
Instant control and security – Virtual cards are a great way to securely issue named virtual cards for employees and be able to close them with a click. Or block them in case they get lost or stolen.
Simplified reconciliation – Chasing invoices and receipts in order to reconcile a card statement with 100+ transactions is mission impossible even for the most persistent accountants. Issuing a virtual card to an employee and having an automated reminder system for payments in place is a great wait to bring the outstanding invoice collection to zero.
Track budgets – Neobanks and fintech companies allow you to manage spending limits in real-time. Breaking up your budget and allocating it in different virtual cards instantly is way better than having to deal with multiple payment accounts.
Real-time spending – You usually have to wait for 3-4 days for card transactions to appear in your card statement. With virtual cards, all transactions are available instantly. You can keep things under control without having to wait for days and weeks to review card statements.
No more card sharing – It’s been a common practice for corporates to have 1-2 company cards tossed around the office. Company card frauds are common and leaving employees often pose a threat to misuse company cards that they had access to. With virtual cards, there is no need to share the company card around for different types of purchases.
How to compare virtual credit cards
Exchange rates – Virtual cards are mostly used for online payments, and the need to pay in different currencies is constant. Traditionally, one of the most hidden and underrated fees a bank charges is the currency exchange fee, so you have to be extra careful. Some neobanks and fintech companies like Payhawk provide extremely low exchange rates that are up to 6 times better than traditional banks.
Type of card – As explained above, not all virtual credit cards are equal. You have to be extremely careful about the type of cards you get since they might now work for your case. Our advice is to choose a virtual card that has its own dedicated balance, and these are the types of virtual cards we are issuing for all Payhawk customers.
Monthly fees – Monthly service fees for every virtual card might limit the adoption of virtual cards. The cost might significantly increase if you issue a lot of cards for each of your budgets.
Do virtual cards work with digital wallets like Apple Pay, Samsung Pay and Google Pay?
Virtual cards are different from digital wallets like Apple Pay, but they can work together depending on the type of cards that you issue. But it’s best to check with your card issuer.
Virtual cards are mostly used for online transactions. However, with the increase of popularity and the convenience of virtual cards, some card issuers enable them to work on POS terminals. Since you don’t have a plastic card, the only way to make a payment is to load it in a digital wallet like Apple Pay that supports NFC payments.
How to get an instant virtual credit card?
The process usually involves opening an account and submitting your company information. Since company funds are subject to Anti Money Laundering regulations, the approval can take up to 2 days depending on the complexity of your business and provided information.
For a technical description of the terms used in this article, you can check our Fintech glossary.