Last editedJan 20233 min read
Virtual cards hold all the same payment details as a traditional card, but they cut out the plastic in favour of a digital format. There are a few other differences to be aware of when comparing your business payment options. In this guide, we’ll look at how to use a virtual credit card as well as the key differences between a virtual card vs physical card.
How do virtual credit cards work?
A virtual credit card stores your card number, CVV code, and expiry date digitally. These digital payment details are usually stored in a banking app or online. This means you can start using it for payment immediately rather than waiting for a physical card to arrive in the post. It’s also easy for businesses to use virtual credit cards to pay for expenses, since you can share card details easily with employees and track your purchases online.
So, how do virtual credit cards work? Their primary function is the same as any other card. Payment details are processed by the merchant the same way as they would be with a physical card. The transaction’s authorised and funds taken from your linked account by the payment processor.
What types of virtual cards are available in Australia?
There are numerous providers of virtual credit cards to choose from. The first are the types of virtual cards you’ll find in a digital wallet like Samsung Pay, Google Pay, or Apple Pay. When you link your existing credit card to a mobile wallet, it creates a virtual copy that enables you to make payments directly from the app. These differ from the original, physical card, however, with a separate virtual account number for security.
Other virtual credit cards are provided through online banks and financial apps. Examples include the MONEYME virtual card, stored on its own MoneyMe app, or the Latitude card, stored on the Latitude app. The PayPal Rewards Card is another example, existing virtually in your online PayPal wallet. Westpac, Bankwest, Bendigo Bank, and others also provide virtual credit cards that you can link to mobile wallets.
For more traditional cards, banks and traditional credit card issuers offer business cards designated for expense management. These can be locked and unlocked by the account holder for added security, making it easy to track and control your business expenses.
How to use a virtual credit card
To get started with any virtual credit card, you’ll fill out an application online. Each card provider has its own set of eligibility requirements. Some will have strict lending criteria and ask to see bank statements as well as several forms of identification.
Once approved you’ll link your virtual credit card to the banking app or mobile wallet of your choice. From there, you can use it to make contactless, online, and mobile payments according to the lender’s rules and your own set of limits.
Virtual credit card advantages and drawbacks
There are pros and cons of both virtual and physical cards:
Virtual credit card advantages include convenience. They’re available to use instantly, without any need to wait for your card to arrive through the mail. They’re also secure, with digital wallets using tools like tokenisation, encryption, and biometrics to keep details safe. If you’re trying to cut down on plastic usage, virtual cards are also completely plastic-free in comparison to physical cards.
However, there are also a few situations where it’s beneficial to have a physical card on hand. They’ll work in situations where you have a spotty connection. If the Wi-Fi is down and you’re in an area with poor mobile phone reception, you’ll struggle to use your virtual card. Virtual cards also can’t be used to withdraw cash from ATMs, and they can be problematic when booking hotels and flights if you need to show your card at check-in.
Are virtual credit cards safe?
They’re convenient to use, but are virtual credit cards safe? Yes, very. They come loaded with all the same security features that you’d expect from a physical card. In some ways, they’re even safer than physical cards. There’s less risk of them being lost or stolen, to begin with. Some issuers generate a new number for every transaction, so even if your details are stolen the numbers will be worthless to fraudsters.
Virtual card vs physical card: which is right for you?
As you can see, there are benefits to both types of card. Many businesses will choose to use a combination of both. Physical cards are a good backup to have in your wallet when you’re reserving hotel rooms or need to access cash. They’re also necessary if you’re using an in-person payment terminal that’s not set up for contactless or mobile payments.
Finally, there are some transactions where it’s best not to use a card at all, such as for recurring and subscription payments. GoCardless uses a direct debit solution to pull payments directly from customer banks instead, which is ideal for these recurring transactions. Bank payments can save your business money on costly card processing fees. Cards carry high transaction costs for merchants, not to mention their high rate of failure. As a customer, there’s less chance of a failed payment due to lost or expired card details when you use a bank transfer.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.