If you’re wondering if you have to do anything different to accept a virtual credit card, the short answer is no. However, it’s good to be aware of the factors involved in virtual cards and that’s what I’ll go over in this article.
What are virtual credit cards?
Virtual credit cards, as their name implies, are digital versions of credit cards. There is no physical card. They’re “linked” to the customer’s account through their card issuer and used (primarily) for online purchases. With a virtual card, the consumer enters the card information for the virtual card when making a purchase. They do NOT enter the card information for their physical credit card. Virtual cards are typically limited. Specific variables that can be controlled differ by provider, but may include options such as limiting to a specific transaction, specific business, or a maximum dollar amount. Cards may also have short expiration timeframes. Credit card companies offer virtual cards as single-use or multi-use. Multi-use cards can be used for multiple purchases, but typically have time limits that can range from days to months.Which companies issue virtual credit cards?
Plenty of well-known companies (such as Apple, Citi, and Capital One) make it easy for their customers to get virtual credit cards for online purchases. When you sign in to your CapitalOne account, for example, the option to get a virtual card is present on the main screen.
But even if a customer’s card issuer doesn’t offer the service themselves, sites like Privacy.com allow people to get virtual credit cards as long as they have a US-based checking account.
How do customers pay with a virtual credit card?
Paying with a virtual card is the same as with a physical card. The customer will enter the information you require in your business’s online checkout - typically the full (virtual) card number, expiration date, and CVV at minimum. If they load the card into a digital wallet, they may be able to use it in-store through a contactless payment method.Accepting Virtual Credit Cards
Just like a customer using a virtual credit card is very similar to using a physical card, taking virtual credit card payments is similar to traditional cards as well. You won’t need to set up anything different for your online payment gateway. If you wish to accept virtual cards through a contactless method, you will need to ensure you have a contactless-capable credit card machine. Aside from the actual acceptance, there are a few places that might be different: refunds, chargebacks, and online sales for in-person pickup or confirmation.Refunds to a Virtual Credit Card
Many businesses that issue refunds prefer to issue it to the original payment method. In the case of virtual cards, the original card may have “expired” before the customer asks for a refund. If that’s the case, you still have options. In many cases, your credit card processor may be able to issue the refund to the original payment method even if it has expired or the cardholder doesn’t have the virtual card details any longer. This is the case with cards from Privacy.com, for example, which explicitly states that even if the customer paused or closed the card they used for the purchase, the refund would still go to the original account associated with that virtual card. Capital One works similarly, explaining in its virtual card FAQ that the customer should retain their receipt to assist the business in looking up the original transaction. Looking it up by actual card number will not work, but if the business can use the virtual number, refunds to the virtual card will go through. If it’s not possible to refund to the virtual card, you may choose to refund the customer in another way. In this situation, it’s best to work with your credit card processor, especially if the customer wants you to issue the refund to another card or give them cash instead. Lastly, there’s always the option to offer store credit. While some customers may not be satisfied with that, it’s worth trying. Be aware that an unsatisfied customer seeking a refund and not getting one may proceed to the next resolution for cardholders: chargebacks.Chargebacks on a Virtual Credit Card
If you’re not familiar with chargebacks (lucky you!) I’ve written several articles about them, which you can check out here: Chargebacks: A Survival Guide. For a quick refresher, a chargeback is when a customer formally disputes a transaction with the card issuer. The bank will investigate the claim and either approve the chargeback (resulting in the bank reversing the transaction to refund the customer) or deny it (meaning you keep the funds from the transaction.) Banks treat virtual card chargebacks largely the same way as physical card chargebacks, with a possible caveat: the transactions are considered more secure, which may protect you against “friendly fraud," that is, a customer claiming they didn’t make a purchase that they actually did. Since virtual cards are intended to minimize unauthorized use by limiting purchases to specific vendors or for specific amounts, it may be harder for the cardholder to claim that a purchase was unauthorized. However, that is only one type of fraud and other chargebacks (including for items not as described or items that never arrived) will not be mitigated by virtual cards. In any case, if your processor notifies you of a chargeback, you’ll need to provide documentation if you intend to fight the chargeback. Your processor can help you determine the best evidence of the legitimacy of the transaction (such as requiring CVV, 3DSecure technologies, or Address Verification) or documentation showing completion (such as proof of delivery.)Does it cost more to take virtual cards?
No, or at least it shouldn’t. Virtual cards don’t incur any additional charges at the “wholesale” level. That means there are no special interchange or assessment categories associated with taking virtual cards. Processors can typically distinguish virtual cards, which means that if they chose, they could charge extra for such transactions. Virtual credit cards may not have the same bank identification number (BIN) as a physical card, which can help processors identify virtual card transactions. However, some virtual cards do have the same BIN as physical cards. In any event, it is likely more effort than it’s worth for a processor to separate virtual cards and physical cards solely for the purpose of charging differently. (But if you see it happening, be sure to let us know!)What businesses don’t accept virtual cards?
While taking virtual cards online for shipped goods doesn’t pose any real challenges, that’s not the case when accepting payments online for in-person pickup / check-in or other situations where you need to see the physical card. This is common in the hospitality industry, such as hotels and car rental agencies, which require a physical card at the time of the transaction even if pre-booked online. Virtual cards are also not a great choice for businesses that offer subscription billing or recurring charges. Because virtual cards can be single use or have a short expiration timeframe, the recurring payment may fail. That means chasing down customers to update their payment information, which often leads to customers simply cancelling instead. Another area that could present challenges is for purchases made online but picked up in person. If your business requires a customer picking up in person to show their physical card in order to match the last four numbers of the card used for the purchase, it won’t match. This is common for things like will-call theater and concert tickets or some types of curbside pickup.Can customers use virtual cards at a brick-and-mortar business?
Yes, but the only secure way to do so is through a digital wallet, such as Apple Pay. At that point it's processed like any other Apple Pay transaction. It’s technically possible to simply enter the card information as a "keyed" transaction with the customer providing the card details, but those transactions cost more since they are considered “card not present.”How do I decline virtual cards at my business?
If your business is in one of the industries noted above and you want to avoid the challenges virtual cards present, you can work with your processor to decline them. Some payment gateways offer filters that allow you to restrict certain cards, including virtual cards. Adyen and Worldpay are two companies that offer advanced filtering tools to help you block such transactions, but many processors may be able to help you limit the transactions you don’t want to go through. That said, as a business, you’ll want to accept as many legitimate transactions as possible. The key is to find the right balance. You may want to consider not restricting virtual cards unless it causes extra risk or creates a challenge to ensuring it’s an authorized transaction. Many processing companies offer filters that flag transactions for manual review vs. outright declining, which is another possible option for balancing your risk. Accepting virtual credit cards is essentially no different than accepting physical cards, and for most businesses, it’s a non-issue. For the subset of businesses in industries with pre-authorizations that are confirmed by physical card (such as hotels), businesses that charge customers on a recurring payment model (such as gyms), or industries with online purchases for in-person pickup (such as will-call) it’s worth considering flagging or filtering virtual transactions to minimize the risks it can pose to your business.
Ben Dwyer
Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing. As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.
