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Virtual credit card: Pros and cons

6 min read

Gaby Pilson
#virtual card#credit card#virtual credit card
Virtual credit card: Pros and cons

Rounding it up

  • Virtual credit cards are digital versions of your physical plastic or metal credit card.

  • To use a virtual credit card, you typically need to have a mobile wallet app, such as Apple Pay, Google Pay, or Samsung Pay, on your smartphone.

  • With virtual credit cards, you can generate a one-time card number for each transaction that you make. These one-time card numbers can reduce the risk of fraudulent charges on your account if hackers get access to your payment information.

  • In addition to their many security benefits, virtual cards also provide a seamless transaction experience and they can help reduce plastic pollution across the globe.

  • But there are downsides to using virtual credit cards, especially if you’re shopping at a merchant that doesn’t accept digital payments or if you need to process a refund at a brick-and-mortar store.

  • All KOHO account holders get access to a free virtual prepaid Mastercard® that they can use for both online and in-store transactions.

Virtual credit cards claim to offer a higher level of security and fraud protection than traditional plastic cards without sacrificing convenience or functionality during your transactions.

But are virtual credit cards really a good idea? Can they actually keep your financial information safe when you shop online? Is there a catch when you use a virtual card for all your purchases?

In this article, we’re going to do a deep dive into the world of virtual credit cards. We’ll discuss the basics of how they work and some of their pros and cons to help you decide if using a virtual card is a good option for your financial life.

As an added bonus, we’ll also talk about the free virtual debit card that comes built into your KOHO account so you have the knowledge you need to make the most of your money.

What is a Virtual Credit Card?

Before we can really discuss the pros and cons of virtual credit cards, we first need to clarify what these cards even are.

Most of us are familiar with credit cards, which are plastic or metal cards that you can use to buy things on credit in stores and online. With these cards, your credit card issuer provides you with a set amount of money each month based on your predetermined credit limit. You can then spend as much or as little of that money as you’d like either online or in stores.

At the end of each month, your bill arrives and you have at least 21 days to pay off your statement balance before your account starts to accrue interest. Once you pay off your balance, you can get back out there and use your plastic or metal card to continue paying for your daily transactions.

That may all sound fine and dandy, but where do virtual credit cards come into the picture, you might ask?

Well, the reality is that virtual credit cards are the same thing as regular credit cards—they’re just, well, virtual.

With a virtual credit card, you can spend money as you normally would with a plastic card by using your revolving credit line. However, instead of carrying around a physical plastic or metal card in your wallet, a virtual credit card exists in your digital wallet, which is normally an app like Apple Pay or Google Pay. You can still use your virtual card to make payments online or in stores so long as the merchant supports these types of transactions.

Pros of Virtual Credit Cards

At this point, you understand what virtual credit cards are and how they work. To help you decide whether these cards are right for your needs, let’s take a look at some of the advantages of using a virtual card for your daily transactions.

Increased Fraud Protection

In addition to being a digital representation of your physical credit card, virtual models have the unique ability to generate a one-time use card number every time you make a payment.

This one-time card number provides you with an increased layer of fraud protection. That’s because it makes it more difficult for identity thieves to take your card information and rack up a whole slew of additional fraudulent charges.

Of course, a one-time card number can’t necessarily prevent the initial fraudulent charge from occurring. But it can stop fraudsters from making multiple transactions with your card details in the future and it can protect your account information if your payment details are ever leaked in a data breach or hack.

Reduced Plastic Waste

A single plastic credit card may not seem like much, but, eventually, each of those credit cards will expire. When they do, your credit cards will join the ranks of other pieces of plastic that end up in landfills, where they’ll take hundreds of years to fully decompose.

In fact, some 6 billion payment cards are produced each year around the world, which only contributes to our growing plastic waste dilemma. The digital nature of virtual cards can help reduce the amount of plastic waste that we produce each year by minimizing the number of physical cards that each of us uses throughout our lifetimes.

Streamlined Online and In-Person Payments

Digital wallet services like Apple Pay, Samsung Pay, and Google Pay are quickly becoming popular ways to make payments both online and in stores. As more and more merchants start accepting these payment methods, making payments using a virtual card can become all the more streamlined.

Digital payment methods are particularly great if you’re shopping online as they eliminate the need to physically get your plastic card out of your wallet and type in your card number to complete a transaction.

KOHO Signup Link

Rather, when you want to make an online transaction using a virtual card, all you need to do is activate Google or Apple Pay on your phone or computer. From there, you simply need to confirm your payment method using a passcode, Touch ID, or Face ID to make a secure payment. It’s as simple as that!

Customizability Options

Depending on your card issuer, you may be able to fully customize your virtual credit card to give yourself an extra layer of security in your transactions.

With some card issuers, you can create multiple virtual cards that are all linked to a single line of credit. You can then customize each of these cards with set spending limits and expiration dates.

For example, if you want to sign up for a subscription service but you don’t want to automatically renew your membership, you could create a virtual card to use for your initial payment but you can set that card up to expire in 11 months. That way, the merchant won’t be able to automatically renew your subscription without your knowledge.

Cons of Virtual Credit Cards

Even though there are quite a few advantages to using a virtual credit card, there are some potential downsides to using these cards, too. Here are some key drawbacks to virtual credit cards that you should keep in mind before you use them to pay for goods and services.

Not Accepted & Issued Everywhere

Although we live in a world that’s rapidly moving toward becoming a cashless society, not all merchants are quite up-to-speed when it comes to the latest payment processing technology.

Some stores haven’t yet updated their payment terminals to accept digital wallets like Apple Pay and Google Pay. In these situations, you won’t be able to use a virtual card, so your only payment option is to use cash or a physical credit card.

Conversely, not all credit card issuers offer virtual cards, so you may not be able to get one in the first place. While most major card issuers support digital payment methods, there are some that still don’t offer virtual cards to their customers. If you have a credit card with a company that doesn’t yet support digital payments, you’ll either need to wait until they do or you’ll need to open an account with a company that provides a virtual card option.

Returns & Refunds Can Be Tricky

Virtual credit cards are awesome tools when it comes to protecting your account information during transactions. The fact that they can produce a one-time card number for each payment you make can greatly reduce the chances of fraud or identity theft if hackers gain control of your account information.

However, these one-time use card numbers can make things difficult if you try to return an item in a brick-and-mortar store that you bought online using your virtual card. Since these one-time use card numbers expire, it can be challenging for merchants to process your refund and have the original purchase amount credited to your account. If this happens, you may have to settle for store credit instead of a cash refund.

Can Make Hotel & Rental Car Reservations Difficult

When you make hotel and rental car reservations, you often have to provide a credit card number to book your room or vehicle. At the time of check-in, you’re typically asked to show your physical credit card to prove your identity and to authorize a security hold on your account.

If you make your reservation with a virtual credit card, however, the card number you present at the time of check-in will likely be different from the card number you used to reserve your stay or rental car. Depending on the hotel or rental car company, this could make your check-in process more of a hassle than you sign up for.

Bring Your Spending into the Digital Age with the KOHO Prepaid Mastercard

Love the idea of a virtual credit card and wish there was one that you could get with your KOHO account?

Good news: You can.

Okay, to be clear, the KOHO prepaid Mastercard® isn’t a credit card (it’s more similar to a debit card because there’s no interest involved with your purchases). But it does come with all the same great benefits that you get with a virtual credit card—just in prepaid card form.

All KOHO account holders automatically get a virtual card that they can use from the moment they open an account. That means you can start spending and earning cash back rewards on your card even as you wait for your physical card to arrive in the mail.

KOHO Signup Link

Plus, the KOHO virtual card is compatible with Apple, Google, and Samsung Pay, so you can use it at thousands of online and brick-and-mortar stores around the world. KOHO virtual cards are also designed to produce a new card number with each purchase to protect your account. What more could you ask for?

Virtual Credit Cards: Yay or Nay?

Like all financial tools, virtual credit cards have their pros and cons. However, so long as you understand some of the limitations of a virtual card (specifically when it comes to in-store refunds and hotel/rental car reservations) there are a lot of great benefits to digital payments.

Virtual cards are particularly powerful as far as account security and fraud protection are concerned. They can also provide a more streamlined transaction experience and they can help reduce the amount of plastic waste that we produce through payment cards each year.

The best part about virtual cards? You get a free virtual prepaid Mastercard® when you sign up for a KOHO account. That means you can get all the amazing advantages of virtual credit cards without the hidden fees and interest charges that come with traditional credit cards. Woohoo!

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our Subscription Plans page for our most up to date account information!

Gaby Pilson

Gaby Pilson is a writer, educator, travel guide, and lover of all things personal finance. She’s passionate about helping people feel empowered to take control of their financial lives by making investing, budgeting, and money-saving resources accessible to everyone.

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