The rapid transformation of the financial sector demands innovative digital solutions. To keep up with the pace, lenders are seeking cutting-edge solutions to help deal with modern challenges, such as identity thefts, while ensuring seamless user experiences.
Virtual credit cards (VCCs) have emerged as a transformative tool. They offer a solution to the safety problem plaguing users, simplify processes, and adapt to the demands of the digital age.
As per Zion Market Research, the global virtual credit card market size was worth around USD 9.31 billion in 2022; it is expected to grow to around USD 42.4 billion by 2030 with a compound annual growth rate (CAGR) of roughly 19.3% between 2023 and 2030.
Let us discuss what virtual credit cards mean and how they impact lenders.
What are Virtual Credit Cards?
A virtual card is a digital payment card that users can use to make payments for transactions carried out online or through mobile apps. As the name specifies, it is virtual, eliminating the need to carry a physical card or cash.
A virtual credit card(VCC) is a unique card numbеr, sеcurity codе, and еxpiration datе the cardholder uses these to make purchases like a physical card. Banks, financial institutions, or paymеnt sеrvicе providеrs issue these cards, and they are linked to an actual account or paymеnt sourcе.
A significant fеaturе that distinguishes virtual cards from physical crеdit cards is thе еasе of crеation and dеlеtion available for the former, which offers usеrs morе control and vеrsatility in thеir spending patterns.
How to Do Virtual Credit Cards Work?
Virtual credit cards offer consumers a quick and uncomplicated option to access funds when needed; cardholders can do away with the need to carry a physical credit card with them at all times.
Credit card holders can obtain a virtual card without any charge. Below are a few key aspects related to their functioning:
- Virtual credit card numbers are temporary, randomly generated numbers. They are created by the card issuer and linked to the primary credit card account.
- Cardholders may need to create virtual numbers using a tool, such as a browser extension or app. Once the user gets the virtual number, they can use it just like a physical card.
- The customer gets a virtual card almost instantly upon making the request.
- A virtual card works just like an actual credit card, with an added layer of security for online transactions. The customer uses it like any other card when they shop online during checkout to complete the transaction.
- The charges are reflected in the monthly account statement, as is the case with a physical credit card.
- Users can choose between single-use and multi-use virtual card numbers based on their transaction needs. Single-use cards are ideal for one-time online purchases or cash withdrawals. On the other hand, multi-use cards are designed for recurring transactions with a specific payment method or vendor, offering a convenient solution for customers who regularly conduct business with the same entities.
Implications of Virtual Credit Cards for Lenders
Virtual cards offer multiple benefits to all stakeholders. Lenders can gain from issuing these cards to their customers in the following ways:
1. Enhanced Security
One significant advantage of virtual credit cards is additional security for users. While this may seem beneficial only for the user, lenders also gain as it builds a secure business environment. It helps build customer trust for the lender, improves the lender’s brand image, and encourages customers to transact fearlessly.
2. Increase in Transactions Volume
Enhanced security, an option to customise spending limits and multiple VCCs boost customer faith and loyalty. These aspects, coupled with the fact that cardholders can do away with the need to have a physical card with them at all times, help boost the number of transactions, which benefits lenders.
3. Satisfied Customers
VCCs are a value-added service that offers customers benefits like better security and more flexibility. These cards also provide unique benefits for businesses by helping them streamline and better manage their payments.
Consumers can customise their spending limits and manage their finances better. This improves customer satisfaction and results in loyal customers.
4. Offers Data Insights
Virtual credit cards are a valuable data source; analysing this data can help lenders offer customised products to their customers. Observing spending patterns allows lenders to provide customers with the right solution and timely advice.
5. Fraud Control
The most prominent challenge for the digital financial landscape is increased fraud. Fraudsters are devising creative ways to dupe consumers, and they cause distress not only to the customer but also to the lender.
Virtual cards offer a hassle-free option for dealing with the ever-increasing number of identity thefts. As they are temporary and users can revoke them immediately, their chance of misuse, unlike physical cards, is minimal. Also, lenders do not have to spend resources to identify or compensate for fraud.
6. Cost Saving
Virtual credit cards eliminate the need to print and distribute cards physically, which can help lenders reduce their costs. They also help lenders reduce the administrative expenses associated with traditional payment methods.
Virtual card transactions are often fully automated with minimal manual intervention for customer service; being linked to specific merchants or uses helps resolve chargeback-related issues much faster.
Key Takeaway
Virtual credit cards are one of the fintech innovations that benefit lenders and users alike and contribute to improving the security of the entire financial ecosystem. They help lenders improve customer satisfaction and transaction volume, reduce costs, provide data for analysis, and minimise fraud.
Integrating virtual cards with their existing loam management systems helps lenders offer their customers intelligent solutions and improve their operation efficiency.
Lending lifecycle management and credit evaluation services platform Finezza offers a web-based lending management software that incorporates the loan origination process, mobile ecosystem, APIs, and delinquency management. It also has a range of products to help lenders improve their financial analysis and decision-making.
Get in touch with us to know more.
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