Virtual Cards: A Solution Looking for a Problem to Fix?

by Brian Riley 0

Interesting read in the LA Times about virtual cards.  With several new models being built around the possibilty of creating ghost accounts, it is time to think through where these products might work and how they add value.

Several large issuers, such as Bank of America and Citi already offer virtual cards, sometimes referred to as ghost cards because they mask a customer’s account number for online transactions.  There are some decent use cases, perhaps if you wanted to purchase at a merchant you did not particularly trust, or if you wanted to supress the vendor name from your monthly statement.

  • In an era when online credit card fraud seems like a foregone conclusion, here’s one potential solution: Instead of trying to prevent card numbers from being pilfered on the web, simply use card numbers you don’t mind being stolen.

  • That’s the pitch from a handful of start-ups that specialize in offering so-called virtual cards — credit or debit card numbers that link to a real payment account but that can be used at only a single merchant or that expire as soon as they’re used, limiting the potential damage if a hacker gets hold of them.
  • By creating payment information that would be of limited benefit to thieves, these companies are mimicking other security measures and payment technologies, including chip cards, which have been introduced over the past few years.

For credit cards, at least, there are a few open questions.  First of all, as a consumer, there are clear protections offered under Regulation E (Reg E).  Card issuers can not expect to have a cardholder pay for unauthorized goods.  Major payment networks take this one step further with their Zero Liability programs.

Wonder if we are setting off alarms that donnot need to ring.  Card issuers and merchants have very strong tools in place to mitigate fraud.  Predicitive scoring is a well established control tool used by all major banks.  This piece in Forbes suggest that Card Not Present fraud has improved, though infact the US market does not disclose actual fraud numbers.

Virtual cards, an outgrowth from the commercial payables business filled a real need.  It shielded corporate credit cards, with very high limits, from procurement issues.  In the consumer space, it is not quite clear whether virtual cards fill a real need, or if they are a solution looking for a problem to fix.

As to the issue of using a card at a merchant you are not confident about using, my suggestion is to find another merchant (Amazon never hurts) or fall back on your Reg E rights.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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