Virtual credit cards: smart move or waste of time?
August 31, 2011
By: Karon Warren
According to the 2011 Identity Fraud Survey Report released by Javelin Strategy & Research in February, the number of identity fraud victims in the U.S. dropped 28 percent in 2010, the first decline since 2007.
However, the nightly news is rife with reports of hackers gaining access to personal financial data, keeping consumers nervous that their credit card information could be compromised. To help protect their customers' accounts when they shop online, many credit card companies offer a seemingly perfect solution: virtual credit cards.
What are virtual credit cards?
Virtual credit cards allow you to keep your credit card information private by associating it with a temporary, disposable credit card number.
"Disposable credit card numbers, also referred to as single-use credit card numbers, are random numbers assigned to your current credit card that are only good for a short period of time," says Andrea Amir, founder and CEO of Smart Money Chicks.
"These numbers are basically an alias for your main account, and they are mainly used online. It gives you the ability to put a barrier between the online merchant and your actual credit card account, with the sole purpose of protecting yourself from identity theft."
Many credit card companies are making it easy to get a disposable credit card number. For instance, Discover offers a Secure Online Account Number service to customers wherein they generate a temporary card number to use while shopping online.
Bank of America offers a similar service known as ShopSafe, which allows customers to create a unique, temporary card number every time they want to make an online purchase. With both credit card companies, the temporary number is attached to the customer's permanent credit card account. With these services, customers can obtain a disposable credit card number through their credit card companies' websites.
Despite the obvious advantages in reducing risk all around, credit card companies do not seem to be actively promoting services for disposable credit card numbers. "I don't recall any marketing material on it ever," says Kyle Ray, vice president and customer service manager with First Bank of Dalton in Dalton, Ga.
Perhaps it's because the benefits are hard to quantify, both for the credit card issuer and the consumer. Does issuing a temporary credit card cost the issuer as much money as it saves in combating fraud? And the consumer may wonder, are these cards safe?
How safe are disposable credit cards?
Given that disposable credit card numbers are attached to actual credit card accounts, some consumers may feel reluctant to utilize them. However, Amir says they could be more secure than using an actual credit card account number.
"In the era of massive online security breaches like Sony's PlayStation experience, they are secure to the extent that after you are done using the card you can immediately cancel that number, and it will not affect your main account," she says. "Also, a real pro of using a disposable card is that you set the limit for that number so you are never in any real trouble of having your card stolen and unauthorized sales up to the limit."
In addition, because the disposable credit card number is attached to the consumer's actual credit card account, all charges associated with the disposable credit card number receive the same protection as the actual credit card, such as charge-back rights and charge disputes, Ray says.
Limits of virtual credit cards
While a disposable credit card number effectively works the same way as an actual credit card, there are some drawbacks. Although a virtual credit card can be set up for multiple uses with the same merchant, you have to be mindful of the limits you set up for this card. For instance, Ray says, if you use it to pay for a health club membership, you need to be aware of the expiration date so you don't risk losing that membership due to an expired card.
Likewise, keep in mind that not all online purchases lend themselves to using a disposable credit card number. "If it's a purchase that requires you to pick the item up in the store and present your credit card, this wouldn't work for you," Amir says. "You may have this same problem with airline tickets."
But in many cases, disposable credit card numbers can be a smart way to protect your online identity - whether you shop on well-traveled or out-of-the-way places. Identity theft can strike anywhere, anytime. If your card came from one of the credit card companies that offer disposable credit card numbers, the free service could be worth checking out.
Correction (Sep. 6, 2011): Discover has announced that its Secure Online Account Numbers program will be discontinued on Sep. 8. Read news article