Credit cards have always been a risky means of payment. There is always the possibility of loss, theft or misuse.
Enter the virtual credit card. It is a digital proxy card ID that can be used instead of your physical credit card. They are a number of ways to avoid divulging personal information and overspending.
So how exactly do they work? Let’s find out.
The New Age of Credit Cards
A virtual credit card is sometimes referred to as a virtual account number or virtual card number. In a nutshell, it is a single-use digital card number that can be used in place of a credit card. Typically they’re set on a limited number of transactions, and they automatically expire after the set amount of time.
You will not disclose any sensitive information that will risk exposing your bank account to fraud. This added sheath of security is one of the fundamental reasons behind the rage after virtual credit cards. With virtual credit cards, you can easily link your existing account information to make transactions faster and easier. With traditional credit cards, you need to enter your card details like the card number, expiry date, CVV, etc, when making a transaction. But when you apply for a virtual credit card, all that information is generated for single time use.
After the validity of the card is over, the random number that was generated is completely gone and cannot be traced back to you. Virtual cards are a valuable way to keep your personal information protected. They cannot be traced back to your credit card, which is beneficial but poses another problem, which we’ll come back to in a minute.
In addition, virtual cards can be used immediately after they are issued to make payments. Since they don’t require printing or mailing anything to the customers, this saves time and makes the process frictionless for both parties.
Credit Card Market in India
In January 2022, there were over 940 million recorded debit card users in India, which seems humongous in comparison to only 70 million credit card users. Additionally, there are over 450 million PAN card users with credit history. This presents the digital cards to a huge pool of prospective consumers.
You can get your virtual credit card in two ways. The straightforward way is to apply for it through the bank to which your actual credit card is linked. You can also link your pre-existing card to online services that provide this feature. Some of the Indian banks that offer this service are;
- HDFC Bank netsafe card
- Axis Bank eshop virtual credit card
- ICICI Bank virtual credit card
- SBI virtual credit card
- Kotak netc@rd
The principle is the same in all of them, just different names. Minimum credit starts from as little as INR 100 and go up to INR 50,000 per transaction every day. The validity of these extends from 24 to 48 hours.
If your virtual credit card is ever compromised, you can easily delete it or lock it with a simple click using your main credit card. With virtual credit cards, you’re protected from fraud, can close down cards on request, and have no direct effect on your bank account. They’re safe and easy to use, so you can keep your finances in order. But are businesses ready to shift to digital cards yet?
Challenges for Digital Virtual Cards
The future of digital cards looks bright, doesn’t it? For all the advantages virtual credit cards offer, they come with a new set of problems, here are some of them:
1. Only Applicable Online
One of the main downsides of acquiring a virtual credit card is that it can only be used online. Most brick-and-mortar stores require you to swipe a physical card to make a purchase. Setting up the system to process such transactions could prove cumbersome for businesses. Thus it is only worthwhile in todays time if you make frequent online purchases.
2. Complicated Returns and Refunds
If you need a refund on a purchase made using a virtual credit card, there might be some complications involved. Retailers often require refunds to be made to the account used for the purchase, but since you used your virtual card number, it is no longer valid. Coming back to the problem mentioned earlier, the transaction cannot be traced back to your account; thus, getting a refund is a far cry. In the most cases, you have to settle for store credit instead.
3. Puts Retailer at Risk
When using virtual cards, the merchant is the sole bearer of risk since the products are delivered to the customer before the money is even transferred. The wait time between making the sale and then receiving payment can be long and riddled with anxiety.
Using a virtual card can also be a problem when you have to present the physical card. In cases such as making a hotel reservation or booking a plane ticket requires you to show your card as proof, which can be difficult to do when the card number does not exist anymore.
Whenever you make a payment via virtual credit card, you are also potentially losing the opportunity to build your credit score and other rewards such as cashbacks and gift vouchers
Physical credit cards are here to stay; it will be long before virtual cards can replace them. Although virtual credit cards are gaining traction, businesses are still hesitant to put their foot down. One major reason could be a lack of awareness of how they operate and the presence of better-known credit alternatives such as BNPL.
Finezza offers a wide variety of products such as Loan Origination Software and Loan Management Software that helps financial institutions like banks, NBFCs, and other lenders. It tracks and manages credit applications, processes KYC documents faster, and streamlines the entire lending process.
Want to make smarter financial decisions quickly? Contact us today!