Credit Card Fraud Costs Rising

Credit card fraud in the U.S. is projected to reach $12.5 billion in 2024, marking a 25% increase from last year, according to the Federal Trade Commission.

Despite the rising costs, credit cards remain one of the safest payment methods available. They come with anti-fraud protections mandated by federal law. If you spot unauthorized charges, reporting them within 30 days means you typically won’t be held responsible.

A virtual card serves as a stand-in for a physical card, providing additional security.

Once fraudsters get their hands on your physical card number, they can use it for various purchases.

You’re not stuck with those charges, but your card issuer might close your account and issue a new card, which can be quite a hassle. With a virtual credit card, you can avoid some of that inconvenience.

Understanding Virtual Credit Cards

A virtual credit card is fundamentally different from a physical one. It’s a 16-digit number with its own expiration date and CVV separate from your regular card.

This adds safety when shopping online because you don’t have to share your actual card details at checkout.

To merchants, these virtual numbers look just like regular credit cards. “The unique security feature is that no one ever sees your actual number,” explained James Lee from the Identity Theft Resource Center. “If there’s a breach, the accessed data won’t include your real card number.”

Additionally, the information transmitted to merchants is encrypted.

Scott Talbot from the Electronic Trading Association mentioned, “If thieves get a hold of a virtual number, their options are pretty limited. Even if they manage to decode it, it’s not a real card number.”

This is reminiscent of how Apple Pay and Google Pay work, generating one-time encrypted codes to keep your card details hidden from both merchants and potential hackers.

However, not all virtual cards operate the same way. Each credit card issuer defines the features it provides. Generally, virtual cards are made for one-time use. You can cancel them at any moment, and if recurring payments are an option, you can limit usage to specific merchants or set an expiration date.

Many banks offer virtual cards that allow setting spending limits, which could be especially useful if you give your teenager access to your account for online shopping.

Your virtual card links directly to your credit card account, so you’ll still see your transactions and rewards reflected on your monthly statements.

The Growing Popularity of Virtual Cards

Although virtual credit cards have been around for about 25 years, their use has surged alongside online shopping. Around 42% of Americans reportedly used a virtual card in the last six months, according to PYMNTS, a website focused on online payments. Interestingly, 65% of consumers indicated they are likely to use a virtual card over the next year.

What’s behind this trend? More than one in three people have encountered credit card fraud, leading many to seek safer payment options.

Sam Miller, CEO of Kasheesh, a digital payment platform, noted that the increasing acceptance of services like Apple Pay and Google Pay is making virtual cards feel less like a foreign concept. “The combination of comfort, improved security, and real-time control is driving customer adoption,” he said.

Distinguishing Between Digital Wallets and Virtual Cards

It’s important to note that virtual cards and digital wallets are not the same, as they serve different functions.

A digital wallet is an app that organizes your payment methods, including credit and debit cards, bank accounts, peer-to-peer payment accounts, and loyalty cards, all in one spot. You can think of it as a digital version of a physical wallet, usable for both online and in-store purchases.

Conversely, a virtual card acts as a unique identifier meant to safeguard your actual account. While it adds an extra layer of security for online purchases, you can’t use virtual cards in physical stores.

Potential Drawbacks to Consider

Before opting for virtual cards, keep in mind some limitations:

• Identity Verification: If you use a virtual card for an online transaction and need to confirm your identity upon picking up an item, discrepancies may arise since the physical card number will differ from the one used for the purchase. This could also happen with hotel and car rental bookings.
• Recurring Transactions: Most virtual card numbers are temporary and not suitable for ongoing subscriptions. It’s best to use them for one-off transactions.
• Tracking Technology: Using virtual cards doesn’t inherently mean your data is private. Depending on the provider, purchase information may be shared with merchants or ad tech platforms for tracking purposes. If privacy concerns you, it’s worth reviewing the provider’s privacy policy.