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What is a virtual credit card and how do they work?

6 min read

Sara Bogunjoko
#credit card#virtual card
What is a virtual credit card and how do they work?

Rounding it up

  • Virtual credit cards are digital representations of your physical card that provide a host of security and convenience benefits.

  • Many virtual cards (including the KOHO virtual card) produce one-time use card numbers for each transaction to protect your financial information.

  • Not all banks issue virtual cards and they may not be accepted by all merchants. It can also be difficult to process in-store returns with a virtual card, so keep this in mind when making payments.

  • Although it’s not a credit card, all KOHO account holders can access a KOHO virtual prepaid Mastercard for free from within the app. You can also add the virtual KOHO card to Google, Apple, and Samsung Pay to streamline your transactions.

The rate of credit card theft and fraud is increasing alarmingly fast. As a result, banks and account holders have adopted new technology to curb the issue, but fraud isn’t going away anytime soon.

Thankfully, there’s a slick new technology on the scene that can help secure your finances when you transact online: virtual credit cards.

Virtual credit cards are basically digital versions of your regular physical credit cards. But they generate a unique card number for each transaction. This helps safeguard your financial information, even if your number is leaked or your account is hacked.

Nowadays, you can use virtual credit cards in a wide range of online and in-person stores across Canada. But how do virtual credit cards work? Are they actually as safe as they seem?

In this article, we’ll take a look at the nuances of virtual credit cards, including how they work, their pros and cons, and where you can get one to use on your daily transactions.

What are Virtual Credit Cards? How Do Virtual Credit Cards Work?

The world is gradually shifting into a cashless society where physical credit cards and digital payment methods are the norm and handling loonies and toonies is a thing of the past.

While some might be upset at the decline of physical money, many of these new innovations have made our transactions that much easier and safer. In fact, many new forms of payment technology, including virtual credit cards can help keep Canadians’ information safe from security breaches or loss.

But what is a virtual credit card, you might ask?

In its simplest form, a virtual credit card is a digital version of your regular plastic or metal credit card. But instead of existing in your physical wallet, virtual credit cards exist on your smartphone or even your computer.

With virtual credit cards, you get a unique, randomly generated card number for each new transaction. Depending on the card in question, this new number may only be valid for 24 hours. You can only use a virtual card number once, too, so it’s impossible for a hacker to charge the same virtual card number multiple times while making fraudulent transactions.

Most major virtual credit cards use high-end encryption and other security features to help protect your account, even if your financial information is leaked in a third-party breach. You can typically use virtual credit cards with mobile wallet apps like Apple Pay, Google Pay, and Samsung Pay, all of which also use industry-leading technology to safeguard your transactions.

Plus, even if a hacker does get access to your latest virtual card number, they would only be able to charge your card once before the payment details expire. This gives you an extra layer of security even if someone else happens to get your hands on one of your virtual card numbers.

Does KOHO Offer a Virtual Credit Card?

Virtual credit cards might sound great, but does KOHO even offer them?

The short answer is no, KOHO doesn’t have a virtual credit card, per se, but we do have a virtual prepaid Mastercard!

KOHO doesn’t currently offer a credit card of any type as the KOHO card is technically a prepaid Mastercard that works the same way as a standard debit card. Whenever you make purchases with your KOHO card, the funds are directly debited from your KOHO account, just like they would if you did your banking at a traditional bank with a chequing account.

KOHO Signup Link

That being said, we do have a virtual version of the KOHO card, which you can use just like a virtual credit card.

To use the virtual version of your KOHO card, do the following:

  • Log into your KOHO account on the app

  • Click the card image in the top right-hand corner of the screen

  • Press “See Card Number” to view your current virtual card number

If you want to use your virtual KOHO card for online shopping, you can simply type in your one-time use card number at the check-out page of any merchant that accepts Mastercard, just like you would with a physical card.

Alternatively, you can add your KOHO virtual card to your Apple, Samsung, or Google Pay wallet if that’s easiest for you. Regardless of how you use your virtual card, all of your cards (including your physical version) will draw from your KOHO account. Plus, there’s no interest or hidden fees when you use your KOHO virtual card. It’s as easy as that!

Pros & Cons of Virtual Credit Cards

As is the case with all things in the world of personal finance, there are both pros and cons to using virtual credit cards. Some of the advantages of virtual credit cards include:

  • Account Security – These virtual cards are backed up with a high level of security that makes your data safe and ensures a secure online transaction. The fact that they generate a new one-time use card number for each transaction highly limits the chances that a hacker could make multiple fraudulent charges to your account. Plus, most virtual card issuers (like Mastercard and Visa) have zero-liability fraud guarantees, so they’ll typically work to help make things right if there’s an unauthorized transaction on your account.

  • Budgeting Tools – Virtual credit cards can be very helpful budgeting tools if you’re trying to keep track of your transactions on the go. Since virtual credit cards immediately log all of your transactions on your smartphone, you can use them to quickly see how much you’ve spent over the course of the day, week, or month. This can save you a lot of time while budgeting, especially when compared to having to reconcile paper receipts. It can also make it easier for you to reference a transaction if you’re trying to get a refund from a merchant or contact your credit card company about a questionable charge.

  • Convenience & Ease of Use – Credit cards are easy to use in their own right, but virtual credit cards are even more convenient. Since these cards live on your smartphone, they reduce the need to carry a plastic card around in your wallet (though it’s typically worth carrying at least one regular credit card around, just in case a merchant doesn’t accept digital payments). Making payments with a virtual card is also designed to be a seamless experience, so you can complete your transactions in just a few seconds.

KOHO Signup Link

Even though virtual credit cards are pretty darn cool, they do have their drawbacks, such as:

  • Refund Issues – Virtual credit cards can make returning merchandise and receiving refunds fairly difficult since they have one-time use card numbers. This is primarily a concern if you are returning an item in-store that you bought online as you won’t be able to prove the card number that you used during the transaction. The good news is online merchants can still typically issue refunds using your old card number and your funds will still generally be credited to your account. Since refund policies vary from company to company, it’s best to contact your card issuer directly to see how refunds might work with your virtual card.

  • Limited Usability – Although virtual cards are gaining popularity, they’re still not accepted everywhere. Some merchants only take cash or physical credit cards. If a merchant doesn’t accept Apple Pay, Google Pay, Samsung Pay, or something similar, you may not be able to use your virtual card for your transactions.

How To Request A Virtual Credit Card

Think virtual credit cards are cool but not sure how to get one?

Getting a virtual card is normally fairly straightforward, but you can only do so if your bank or financial institution offers them.

At KOHO, all accounts come standard with a free virtual prepaid KOHO card. You don’t need to do anything special to request one as you can access your card from the KOHO app. From there, you can add your card to your mobile wallet for seamless transactions.

While we can’t speak to the process of requesting virtual credit cards from every bank and card issuer, your first task is to find out if your financial institution offers this feature to begin with. Even though virtual cards are becoming more popular, not all banks offer them yet, so you may not quite be able to get one for your mobile wallet.

If your financial institution does offer virtual cards, getting one usually requires logging into your bank’s mobile app. From there, you can typically find a button that brings you to your “digital card.” Then, you can follow the prompts to add your card to your mobile wallet so you can make your daily transactions.

Keep in mind that some banks only offer digital credit cards rather than truly virtual ones. In some instances, your digital credit card may not automatically change its card number with every transaction. These cards are still convenient and easy to use, but they may not provide as much account security as a true virtual card like the KOHO card.

Virtual Credit Cards: Are They Worth It?

Virtual credit cards are an incredible financial innovation. They make it easy to process payments both online and in-store without exposing your account information, which can put you at risk in the event of a data breach.

The main drawback to these cards, however, is that they’re not widely accepted by merchants and there are many banks that still don’t offer them to their account holders. But if you want a convenient, feature-packed, and user-friendly virtual prepaid card in Canada, you can find one with your name on it here at KOHO. What more could you wish for?

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!

Sara Bogunjoko

Sara Bogunjoko is a professional writer and SEO specialist with broad experience of writing compelling content in the finance industry.

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