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What are virtual cards and how do they work?

Virtual cards are a swift and safe way for your customers to make purchases—while generating revenue for your business. Learn how to launch them.

Last updated:

April 4, 2024

9 minutes

Introduction to virtual cards

By 2027, virtual debit and credit cards could generate $71B in revenue for US businesses that offer them, according to a recent forecast from Juniper Research.

Perhaps for that reason, virtual cards are expected to continue to surge in popularity. For tech companies and their customers, they provide clear benefits:

  1. Speed. Virtual cards can be created instantly, and customers can use them to make payments within moments. 
  1. Cost. There are minimal costs associated with generating virtual cards, so it’s easier for you and your customers to create as many as needed. 
  1. Programmability. Virtual cards are highly programmable. You and/or your customers can set rules to govern how funds are spent.
  1. Security. You and your customers can create restrictions for how their virtual cards are used, including one-time-use cards. This can be a safeguard against security breaches. 
  1. Design flexibility. Virtual cards don’t require designs, which can expedite your speed to market.
  1. Revenue. Virtual cards generate interchange revenue whenever your customers make card purchases. 

If you're curious about whether virtual cards are a good fit for your business and how they work, this guide is for you. In it, we’ll answer the following questions:

  • What is a virtual card?
  • What are some common use cases for virtual cards?
  • How do companies make money from virtual cards?
  • Are virtual cards right for my business?
  • How do you launch virtual cards?
Mesh enables businesses to create unlimited virtual cards with features like spend limits and merchant-specific restrictions.

What are virtual cards and how do they work?

A virtual card is a unique sequence of numbers that enables a customer (either a business or a consumer) to make purchases via credit- or debit-card networks, much as they would with a physical card. 

To help customers understand the concept, these numbers are often displayed on a digital image of a debit or credit card. But there’s no actual, physical card associated with a virtual card. It’s just a sequence of numbers.

Virtual cards are highly programmable, and your customers can start using them in moments. For you, they can generate robust interchange revenue.

Virtual cards can be used to make purchases online, in-person, or over the phone. Cardholders can also type their virtual card numbers into a form or speak them aloud to a customer-service representative.

Virtual card numbers are typically generated according to the same rules that govern physical card numbers. Like physical cards, virtual cards come with an expiration date, the name of the card network (e.g., Visa or Mastercard), a Card Verification Value (CVV) code, and the customer’s name.

Virtual cards are not to be mistaken with digital cards, which are a separate type of card from virtual cards. Digital cards are commonly associated with Apple Pay and other mobile wallets. 

What are some virtual card examples? 

At Unit, we’ve helped leading tech companies design and issue virtual cards. Based on our experience, these are a few common use cases and industry examples for virtual cards.

  • Manage corporate expenses. (Examples: Shopify, Mesh). Virtual corporate cards can help to set guardrails and increase transparency around business expenses. As examples, your customers could set expiration dates for certain cards, monthly spend limits for vendors, and even merchant-specific limits to restrict purchases to specific purposes.
  • Enable purchases in moments. (Examples: Roofstock, Chime). With virtual cards, your customers can start making purchases (and you can start earning interchange) within moments. You can even automatically issue your customers a virtual card while they wait for their physical card to arrive.
  • Manage merchant-specific purchases and subscriptions. (Example: Eno by Capital One, Divvy). You can create cards that, once spent with a specific merchant, can only be used with that merchant going forward. For example, if a customer uses this type of card to pay for a Netflix subscription, that card could only be used with Netflix thereafter.
  • Pay independent contractors and employees. (Examples: Uber, DoorDash). You can use virtual cards to pay your staff so that they don’t have to wait for their paychecks to arrive. For example, you can set up instant payouts that are added to a virtual debit card, which ensures that your staff is paid promptly.
  • Cards for one-time use. (Examples: Privacy, Ironvest). Issue a card that automatically expires after a single payment. This can protect the end-user’s information from data breaches and even make it easier to sign up for free trials

How do businesses make money from virtual cards?

As with physical cards, the primary way that companies generate revenue from virtual cards is via interchange fees

Interchange is generated whenever your customers make card purchases. It’s calculated as a percentage of the overall transaction value, as detailed in our interchange guide linked above. 

These revenues are typically shared among the card network, the issuing bank, any platform partners, and your business. That said, the lion’s share of the interchange typically goes to the company whose brand is on the card—i.e., you.

You’ll earn interchange whether you’re offering virtual cards for business or for consumer use cases. If you're offering virtual charge cards and/or credit cards, you may also generate financing revenue. Learn more in our guide to embedded lending.

How do I issue virtual cards?

In general, there are two ways to go about virtual card issuance:

  1. Work with a bank, processor, and network—without the help of a platform
  2. Work with a bank, embedded finance platform, processor, and network

Which you choose will drastically impact your time-to-market and the resources you need to invest, both up-front and on an ongoing basis. 

If you decide to work without a platform, you'll need to establish the following:

  • Bank partner. You’ll need to find a bank partner and work with them to get your virtual cards program parameters approved. Be ready to negotiate and execute a contract with your partner and build the technical integration between your bank and your card processor. 
  • Processor: Onboarding accounts, processing transactions, and handling fraud are among some of the main things your processor will manage for you. Importantly for virtual cards, your processor will install your dedicated Bank Identification Number (BIN), work as your data security partner for storing and transferring customer data, and coordinate user authentication. 
  • Network: Finally, you’ll need to choose a network; most companies work with Mastercard or Visa, depending on what their bank partner prefers. If your bank partner and processor allow for it, you may be able to put together a deal with your network and negotiate your terms (e.g., fee rebates and marketing incentives). 

Once these partnerships and processes are set up, you’re ready to make virtual cards available for your customers to use. 

If you work with a platform, your process will look different. With Unit, for example, once you’re a client with production access, you just make an API call. We’ve already optimized the relationship between the bank, processor, and network, removing much of the complexity and manual labor you would have had to go through to set up a program.

Are virtual cards right for my business?

It’s a good question, and there’s no one-size-fits-all answer. 

As a starting point, we recommend getting to know your customers deeply and thinking about the decision through the lens of their needs and preferences. You can also ask yourself the following questions:

  • What are the demographics of our customer base? Will they be comfortable with this technology?
  • What kinds of purchases do they typically make? Are cards their preferred payment method?
  • Do we want them to be able to use their cards immediately? 
  • Is the unboxing experience of receiving a physical card important to our brand or our customers?
  • Do we rely on physical cards as a part of our marketing strategy? Do our cards need to be visible in stores and restaurants to help get the word out about our company?

Want help thinking through your card strategy? Contact us to book a demo—or just sign up for our sandbox and start building.

Originally published:

March 6, 2023

In this guide

Frequently asked questions

Are virtual cards safe?

For end-customers, virtual cards can be safer than physical cards. Virtual cards can’t be physically lost, and there are many safeguards on phones, devices, and websites to ensure that the person accessing the card is, in fact, the cardholder. Given the low cost and flexibility of programming virtual cards, it can be easier to program virtual cards to expire after one use, limit their use to specific merchants and merchant categories, and enforce spending limits. All of these restrictions can reduce what can be done with card numbers if they’re stolen. 

Virtual card programs are held to rigorous data-storage standards. In fact, many adhere to the same Payment Card Industry Data Security Standard (PCI-DSS) requirements that banks and credit unions follow.

Learn more

How much compliance is required to offer virtual cards?

In general, virtual cards require the same level of compliance as physical cards. That starts with a compliant Know Your Customer (KYC) flow. It’s required when a customer opens an account and to continue monitoring the account thereafter. You’ll work together with your bank and any platform partners to build a great KYC flow. At Unit, we’ve pre-built these KYC flows, streamlining the compliance you would otherwise need to build from scratch. 

Learn more

How can my customers request or generate a virtual card?

You can choose how your customers request or generate their virtual cards. We’ve seen businesses make it an automatic process; that is, as soon as a customer creates a bank account, they are issued a virtual card. Other businesses make it as easy as tapping a button in an app. You have a lot of freedom here to think through how you’ll create the ideal user experience. 

Can virtual cards be added to a mobile wallet?

Yes, virtual cards can be added to mobile wallets (like Apple Pay, Google Pay, and more). Virtual and physical cards are both eligible to be tokenized into digital cards that can be added to mobile wallets. 

When your customer’s digital card is created, it is "linked" via your issuer’s token vault to its underlying physical or virtual card. Once this process is complete, your customers will have a digital card (which is now linked to their physical or virtual card) in their mobile wallets.

Learn more

Do I need to get virtual card designs approved by my issuer?

Virtual cards do not require designs. However, if you’d like to create a visual representation of your virtual card, the best practice is to follow the same design guidelines as you would for a physical card. For your visual representation of a virtual card, it’s recommended that you omit displaying physical card features that virtual cards don’t have, like the card chip.

If I want to issue a physical card instead of or in addition to a virtual card, what does that involve?

The process of issuing a physical card is a bit more involved than creating a virtual card. Once you’ve found and partnered with a card printer, you’ll need to design the card, get it approved, test it, manufacture it, and ship it to your customers. That takes a minimum of six weeks for standard cards and 12–20 weeks for custom cards. 

Because you’ll be working with physical materials, you may run into additional variables. For example, supply chain issues have created a shortage of credit card chips, which can slow down the card creation process.

Working with a platform can streamline this process considerably. For example, we work with designated printers and have established processes with them that streamline card design and testing. This can help reduce your time to market. 

Learn more

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