What Is a Virtual Credit Card & How Does It Work?

Virtual credit cards are a fast-growing solution for businesses seeking secure, flexible, and efficient payment options. These digital cards work just like traditional credit cards but offer unique benefits tailored to modern business needs, such as instant issuance and spending controls.

Companies across industries use virtual cards for a range of applications, from managing vendor payments to tracking employee expenses. Understanding how virtual credit cards work—as well as their benefits, challenges, and specific business applications—will help you decide whether this payment solution is right for you.

What Is a Virtual Credit Card?

A virtual card functions just like a physical credit card. It has a card number, CVV, and expiration date—only without the plastic factor. They consist of temporary, 16-digit codes primarily used for online shopping and transactions.

These cards are created on-demand by the card issuer or payment provider. They can be configured as single-use cards for a specific transaction amount or as multi-use cards to manage recurring payments. Virtual cards can also be customised with limitations on spending, vendor access, and intended use.

How Do Virtual Credit Cards Work for Businesses?

A virtual credit card works by generating a unique number that is connected to your business’s credit account. This number can be used to complete online transactions through a payment gateway. Companies can manage spending by setting limits and expiration dates. This makes virtual cards a flexible solution for online purchases, vendor payments, and employee expenses.

For instance, a company can issue a virtual card specifically for a one-time office supply purchase. Multi-use virtual cards can be issued to employees for travel expenses with limits tailored to transportation or accommodation. After the one-time purchase or at the end of the business trip, the card expires, so even if its details are compromised, they can’t be reused fraudulently.

How Do You Get a Virtual Credit Card for Your Business?

Obtaining a virtual credit card for your business is a straightforward process that typically involves these steps:

1. Choose a Credit Card Issuer or Payment Provider: If you do not have one already, start by selecting a reputable credit card issuer or financial platform like Unicorn Group that offers virtual credit card services.
2. Apply for a Business Credit Card Account: You will need to apply for a business credit card account if you do not already have one.
3. Access the Virtual Card Tools: Once you have a business credit card account, log into your online banking portal or mobile app. Look for the option to create a virtual credit card.
4. Set Parameters for Your Virtual Card: When creating a virtual card number online, you have the option to set specific parameters, including spending caps, expiration dates, use categories, and specific vendors.

Benefits of Virtual Credit Cards for Businesses

Virtual credit cards offer significant advantages for businesses looking to manage corporate spending and make secure online payments.

• Instant Issue: Virtual cards are generated instantly, giving employees immediate access. The rapid creation process streamlines payment responses, enabling flexible, on-demand purchasing without the delays of a credit card issuer creating and mailing a physical card.
• Enhanced Security: By creating unique virtual credit card numbers for transactions, businesses protect their physical credit card information.
• Customisation and Spending Control: Virtual cards let businesses assign limits, expiration dates, and vendor-specific rules to reduce the chance of overspending.
• Real-Time Tracking: Virtual card transactions can be monitored in real time, improving financial management. This feature is especially beneficial for businesses that shop online frequently as it ensures that spending remains transparent and controlled.
• Simplified Accounting: Virtual cards streamline expense tracking, making reconciliation faster and easier.
• Fraud Prevention: Virtual cards reduce the risk of fraud since they can be set to expire after a transaction, a specific period of time, or when a spending limit is reached. This makes them a powerful tool to use as part of your business’s fraud prevention strategy.
• Sustainable Alternative: Virtual cards reduce the need for plastic production and shipping, making them an eco-friendly choice that aligns with corporate social responsibility goals.

Security Benefits of Virtual Credit Cards

A major advantage of virtual credit cards is their high level of security, especially in light of the growing threat of cyberattacks. Unlike physical cards, virtual credit cards can’t be cloned or skimmed, making them immune to certain types of fraud.

Even in cases of phishing attacks, where a virtual card number is disclosed, it becomes useless after its intended transaction. Additionally, businesses can implement advanced security measures like two-factor authentication and encryption to further protect their virtual card systems.

Virtual cards also safeguard against account takeover. Should a virtual card number be compromised, its temporary nature ensures that no further damage will occur after it expires. Many card providers also allow companies to block specific vendors or types of purchases to reduce the risk of unauthorised spending.

Challenges of Virtual Credit Cards

Despite their many advantages, there are a few challenges businesses should consider when using virtual credit cards.

• Use Is Restricted to Online Purchases: Virtual cards usually can’t be used for in-person payments because they are primarily designed for remote transactions and shopping online. Likewise, they can’t be used at ATMs for cash withdrawals.
• Vendor Acceptance: Not all vendors accept virtual cards, and businesses may need to manage compatibility issues across their systems.
• Learning Curve: There can be an initial learning curve in setting up and managing card details efficiently for businesses managing multiple cards across different departments.
• Overall Credit Limit: Virtual cards are tied to the overall credit limit of your company’s account, so businesses must ensure sufficient credit is available for all transactions.
• Expiration Monitoring: Companies need to stay vigilant with virtual card expiration dates, especially for recurring payments. Failing to renew cards could result in service interruptions or missed payments.
• Dependence on Technology: Virtual credit cards rely on the availability and security of the issuing platform. Any technical issues with the provider could delay or complicate transactions.

Virtual Credit Cards in Different Sectors

Various industries benefit from virtual credit cards due to their flexibility and security.

Retailers

Both e-commerce and brick-and-mortar retailers use virtual cards to pay suppliers and vendors and automate payments for expenses like software subscriptions.

Construction

Construction companies are able to set limits for vendor-specific purchases of materials, ensuring enhanced budget control.

Healthcare

Clinics and hospitals use virtual cards to manage medical supply purchases within their budget.

Nonprofit Organisations

Nonprofits assign virtual cards to volunteers or remote teams to ensure financial oversight and reduce the risk of misallocated funds. Furthermore, using virtual cards eliminates the need for physical cards that are challenging to distribute securely in diverse locations.

Educational

Educational institutions use virtual credit cards to manage departmental budgets for supplies and technology. This ensures that spending limits are adhered to while streamlining expense tracking and reconciliation.

Integrating Virtual Credit Cards With Financial Systems

Businesses can seamlessly integrate virtual cards into their existing financial infrastructure, making operations smoother and more efficient. Connecting virtual cards to accounting software or ERP systems allows companies to monitor payments, manage vendor transactions, and automate reporting.

For example, a department is issued a dedicated virtual card, allowing managers to track and approve purchases in real time. This level of integration improves financial oversight and reduces the time spent on manual expense reconciliation.

Additionally, companies can automate recurring payments, such as software subscriptions, with predefined limits and expiration dates, preventing unauthorised charges. The system’s automatic features ensure that payments are on time and within budget, further enhancing operational efficiency.

Business Use Cases for Virtual Credit Cards

Virtual credit cards are particularly helpful in the following business use scenarios.

Employee Travel and Expenses

Companies can issue virtual cards for specific trips with limits set for accommodation, flights, and car rentals. For example, a multinational company assigns virtual cards to employees travelling for business, with pre-set limits for each trip. Employees are able to spend within the approved budget while managers maintain full visibility of expenses in real time.

Managing Budgets at Trade Shows, Events, and Conferences

For event planners, overseeing multiple vendors at large-scale trade shows or conferences is complex. Virtual credit cards streamline this process by allowing planners to assign cards to specific vendors or categories, such as catering or equipment, each with clear spending limits.

Real-time monitoring provides the flexibility to adjust funds as needed, keeping expenses within budget. By centralising all transactions into a single system, virtual cards simplify post-event tracking, reducing administrative work and improving visibility over total costs.

Marketing and Advertising Campaigns

Businesses use virtual cards to control spending across different marketing campaigns. For instance, a digital marketing agency will issue separate virtual credit card numbers for distinct initiatives, such as one for social media advertising and another for pay-per-click campaigns. This strategy enables precise tracking of expenses and ensures that each campaign remains within its allocated budget, allowing for real-time adjustments based on performance metrics.

Subscription Payments

Virtual cards are perfect for managing ongoing software or cloud service subscriptions. Companies can assign cards with limits and expiration dates to prevent unauthorised charges, and they can quickly disable the cards when the services are no longer needed.

Future of Virtual Credit Cards in Business Payments

Virtual credit cards are poised for rapid growth as businesses move toward digital payment solutions. According to data from Technavio, the size of the European virtual card market size is expected to increase by USD 237.2 billion at a CAGR of 27.18% between 2023 and 2028.

Virtual Cards: Secure and Simple

Virtual credit cards are transforming the way in which businesses handle payments, offering enhanced security and streamlined expense management. By providing instant issuance, tailored spending controls, and improved transaction tracking, they reduce the administrative workload and improve overall financial oversight.

As companies from diverse sectors adopt these digital solutions, virtual cards are proving to be a versatile tool that aligns with corporate goals around security, budget control, and sustainability. Virtual cards are poised to grow and become an integral part of efficient, digital-first financial operations.