Virtual debit cards and virtual credit cards (VCC) solve the prime issue with plastic credit and debit cards – their security. You likely share the same payment details for every online purchase or subscription. This is not wise in 2020.
Being here means you are either proactively seeking ways to stay protected when shopping online or your plastic debit or credit card details were exposed and used maliciously. Maybe you were caught in one of the latest data breaches? Or, are you looking for a prepaid virtual debit card but ended up Googling “virtual credit card”, because the terms are often used interchangeably?
So, you know that virtual payment cards help you stay safe, but which kind is the best for you? Is it the virtual credit card (VCC) or virtual debit card?
You are in the right place and we hope you are not in the middle of a money-trouble. Even if you are, it’s our business to help sort out any money issues you might have.
The obvious difference
Let’s visually explore the basics of virtual cards:
Looking at the table above, you should see that “virtual debit card” and “virtual credit card” are exactly as different as physical debit and credit cards. Visa and Mastercard are the most well-recognized card schemes or card networks. They have their own specialty sub-divisions or card types like Maestro (online-only debit and pre-paid cards, owned by Mastercard) and Visa Electron which, as the name implies, only works for electronic payments. There are other major international names like American Express and Diners Club. There are many regional card networks like Bancontact, BC Card, BCA Card, Discover, JCB, RuPay, UnionPay, to just name a few. Your payment service provider may offer any of these, but not necessarily in a virtual state of existence.
What do VCC (virtual credit cards) and virtual debit cards have in common?
In a nutshell: The beauty of virtual cards is that they are a commodity and you can use a different card for each merchant, essentially limiting its exposure and keeping better control in case of a data breach. You could even use a virtual card only one-time, then delete it. Freezing, payment limits, notifications and other options for control and protection are dependent on the card issuer’s capabilities.
How bad were data breaches in 2019?
Have a look at this extensive list of over 100 major data leaks in 2019. The issue is too big and affects all market participants – regulators, businesses, banks and users. What is being done? Measures are being taken by everyone. The “Strong Customer Authentication” or SCA is already a requirement of the revised EU Directive on Payment Services (PSD2). Payment service providers within the European Economic Area need to create measures that ensure all electronic payments are performed with multi-factor authentication, to increase the security of e-payments.
Our company, iCard, was established back in 2007. This was long before the revised EU payment service rules came into force and when they did – we were already compliant. The same goes for the way we authenticate our app users and their transactions – it’s top-notch and already compliant.
Next, we’ll look through the major differences. At the end of this article, you will find some of the disadvantages of virtual cards.
What exactly is a virtual credit card or VCC?
In its essence, a virtual Visa or Mastercard credit card, or VCC, is a payment instrument that has no physical carrier and can only be used for distant payments – online or sometimes even over the phone. It is issued by a credit, e-money or financial institution and draws money from your credit line, rather than a deposit in a bank account. It combines some of the best features of regular debit and credit cards and offers a modern online or mobile access dashboard.
Instead of having your payment details on a physical carrier card, the information is generated for you online and is simply a combination of the 16-digit number, CVV/CVC and expiry date.
Since virtual credit cards represent loaned money, you will most certainly have to apply for a line of credit, before getting one. Obtaining a virtual credit card for online protection depends on your payment service provider’s systems and capabilities. Virtual credit cards may not be issued instantly because credit approval is required.
In reality, very few providers offer virtual credit cards. Staying protected when you shop on the web or subscribe to online services can be as effective with virtual debit cards.
Fun tip: Some digital wallets let you add (or store) a virtual debit or credit card and use it with a mobile phone to make contactless payments on POS terminals.
Let’s explore the virtual debit card.
Virtual debit cards are also designed for online payments. They can either be funded with a prepaid amount or use the balance (or overdraft) of the payment account they are connected to. They also carry a combination of Mastercard, Visa or other network’s card details that represent your available funds.
The main benefit of a virtual debit card is the ability to simply delete or disconnect one in case it expires or gets stolen. Should your virtual card details get compromised in a data breach, you can dispose of it and continue using your primary debit card, or proceed with a replacement virtual card. This will save you time for reporting to the police, explaining to your account provider, waiting for a replacement plastic and updating all the recurring payments and subscriptions that were linked to your defrauded card.
Virtual debit cards are not only issued by banks, but also by electronic money institutions like our company – iCard. Our virtual cards will very soon work with your Apple Pay wallet, just like our plastic Visa debit.
Virtual cards have some downsides.
1. Returning a product you bought online with a virtual card, to a physical store.
Returning items you bought with a virtual card to the physical branch of the retailer can be a very convenient idea but doesn’t always work as expected. In most cases, you would need to tap or swipe the card you used for the initial purchase. This way it gets recognized by the store’s payment system and your money gets back to your card. Since this is not possible, due to no physical representation of your virtual card, your only 2 options could be to either accept a store gift card or cash.
Keep in mind that each store has its own (and sometimes very strict) return policies. For the reason mentioned above, you are advised to follow the procedure and return the goods the way you received them – via postal or courier service. Just comply with the shop’s guidelines if you don’t want surprises or time wasted.
2. Single-use or disposable virtual cards are not always good, just like cards with short expiration dates.
Sure, no one can steal your money if your disposable virtual card details get compromised because they were already invalidated after the first use. So, how do you stay protected when you pay for your online subscriptions?
Simply select a virtual card provider that lets you purchase virtual cards instantly. Don’t forget you need options to freeze and delete the card any time you want.
The same goes for virtual cards with short expiration dates. This can prevent your online service provider from charging your expired virtual card for the next month’s subscription fee. We are sure you don’t want to waste time renewing payment details or coming home tired from work to an expired Netflix subscription.
3.Virtual credit cards and interest rates.
Consider the following advantage of virtual debit cards over VCC: the interest rate on your loan. Failing to meet minimum payment requirements may quickly turn your credit card debt into a very toxic burden. Still, most virtual card providers do let you limit your own spending limits. A self-imposed threshold can be a great reminder for re-evaluating your monthly budget.
Virtual cards are all about protection.
You just learned that the terms “virtual debit card” and “virtual credit card” are often used interchangeably. The reason is embedded in history. Many jurisdictions have passed laws to protect consumers from misleading lending practices and irresponsible merchants.
In the UK, for example, credit card payments are protected by Section 75 of the Consumer Credit Act, which was updated in 1974. The law covers credit cardholders from losses for purchases between £100 and £30,000. This protection can help you recover costs of purchases for items or services that are faulty, damaged or that differed from the description and the merchant fails to refund or respond. An EU-wide directive was introduced in 2008, called the Consumer Credit Directive, with the aim to introduce new protections for consumers, up to a certain threshold.
The second type of protection is called a chargeback. It was introduced around the same time by the card networks but is not legally enforceable. You are always advised to get familiar with the type of protection you are getting.
Because chargebacks are not described into law, consumers ended up assuming that credit cards are more protected. This distinction in people’s minds is now being reflected into the two virtual card types, thinking that a virtual credit card offers more protection than a virtual debit card.
In practice, virtual cards offer different protection mechanics – freeze, unfreeze, self-imposed limits on transactions and the ability to delete a virtual card. Even if you forget to freeze a card and it gets defrauded, most card issuers will refund any money stolen from you via a chargeback. Simply report it on time, properly, with all supporting documents to prove your case, and you are very likely to get your money back.
iCard gives everyone a free virtual Visa and a free virtual Mastercard.
At iCard, we can’t advise which is the best virtual card for your personal spending needs, but we know how to protect your money. Our digital wallet lets you create and use virtual debit cards instantly, with a few taps. Keep in mind that you need to be a fully verified user, resident of EEA.
It’s up to you to select whether you need a virtual Visa or a virtual Mastercard. They are both accepted at online merchants worldwide.