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The holidays are here, and it is estimated that US holiday retail sales will reach $1.3 trillion. Of that $1.3 trillion, eCommerce sales are estimated to be $236 billion. While that is great news for retailers and will deliver interchange revenue for a financial institution’s card program, it also means the holidays could be a windfall for fraudsters. In fact, Transunion reported a 4% increase in fraudulent e-commerce transactions between Thanksgiving and Cyber Monday in 2021, compared to the same period the previous year. Additionally, the number of phishing domains increased by 397% in the run-up to Black Friday last year. Let’s discuss how virtual cards can increase consumer card convenience while mitigating this ever-growing problem of holiday fraud.

Much of the hype around virtual cards’ effectiveness is that they are temporary, single-use card numbers linked to a consumer’s credit/debit card through randomized temporary numbers. Virtual cards are typically used for a single purchase. An attractive feature of a virtual card is that it can have a specific dollar amount limit and be used for in-store and online transactions. Consider this scenario. A consumer wants to purchase a computer online for $1,000. Instead of using the actual credit card number assigned to their account, they use a virtual card with a $1,000 limit. Even if a fraudster obtains the virtual card information, it is of no use to them. Virtual cards no longer exist after the transaction is complete. This makes virtual cards an effective strategy to protect consumer information.

What happens if a member wants to return a purchase made with a virtual card? The return process is a bit more complicated since the card is no longer valid post-purchase. That means the refund options are limited. The consumer is stuck with the decision to exchange for other merchandise at that store or wait for a check to be mailed for the refund.

Virtual cards may not be great for reservations, either. For example, hotel rooms can be booked online, but at check-in, the hotel may ask for the guest to present the card that was used to make the reservation. This same premise is true for rental car reservations. The card used to make the reservation may need to be presented at the time of pick up.

Virtual cards save time and protect the consumer. But they also offer time and protection benefits to the financial institution as well. As an example, virtual card limits can be changed by the consumer, requiring no assistance from their financial institution. Consider the following scenario: an account holder wants to purchase an item that is priced higher than the daily limit on their debit card. To use the card to make the purchase, the consumer must contact/visit their financial institution, request a temporary increase to the card limit, and make the purchase. After the purchase, the consumer may have to contact their financial institution to have the debit card limit set back to the normal daily limit. These processes take up valuable organizational resources for tasks that a virtual card would not require. As an added protection, the consumer can cancel the virtual card, which, again, would require no assistance from their financial institution and leaves no potential card information to be used by fraudsters.

The answer is: that it depends. Plastic cards will likely always exist as some consumers do not enjoy nor participate in the digital card experience. But virtual cards are gaining popularity among the up-and-coming generational segments. 81% of Millennials prefer to use virtual cards for online purchases, and 4 in 5 of Gen Zers would use a virtual card to purchase online.

The wildcard in the virtual card’s popularity trajectory is the digital wallet. As more merchants offer POS terminals that accept payments using a digital wallet, the popularity of that payment method will increase. Digital wallets take digital payment card convenience to the next level, since consumers can store all of their cards in a secure environment and select which card they want to use at the time of purchase. We will discuss digital wallets in a future blog so stay tuned. Suffice it to say that the future of digital card usage is looking bright.