Virtual credit card - What is it and what are its advantages and disadvantages?
Since online shopping has become more and more popular, there are also more and more payment methods that are designed directly for it. They all have their advantages and disadvantages and some of them are even real payment traps that can cost the unwary user a lot of money. That's why it is important to be well informed, especially in the online sector, before resorting to a means of payment that you don't know yet. One of these new, modern and purely digital means of payment is the so-called "virtual credit card". We came across it a few days ago and wondered what is behind this pompous name. If you already know what virtual credit cards are and you are looking for a comparison of the best known providers, you can find it in the article "virtual credit card comparison".
A credit card from the future?
Nowadays, instead of a plastic card, do you get a hologram that appears in your hand whenever you need it? No, unfortunately not! The answer is much simpler. Maybe not as cool, but probably a little more practical. With a virtual credit card, the providers limit themselves to the online functions, where the card is not needed at all. In other words: You only get a credit card number, an expiration date and the usual card verification number, but no card anymore. With these access data you can then pay online in the same way as before with a real credit card. So instead of reading what is written on the card, you simply type in the data that you got before without a card.
Digital credit cards in the real world
My initial idea with the credit card in the form of a hologram turned out to be more realistic than expected during my research. This sounds like a joke, but it is not that far from reality. Because there are already first possibilities to pay with a virtual credit card in ordinary shops. In Germany, this is not yet really widespread, but in Scandinavia it is almost normal. Although you don't use a hologram, you simply use your smartphone. But the smartphone must be NFC-capable. If this is the case, a virtual credit card is used to top up a credit balance which is then automatically debited at certain, specially designed cash terminals in the amount of the purchase price. The hard thing is that this happens contactless. So you don't have to dock or connect your mobile phone anywhere, just bring it near the terminal.
What does a virtual or digital credit card look like?
In this case the card itself no longer exists. Instead, you will receive all the data that can normally be found on the map:- Your name - The credit card number - The expiry date - The card verification number Now you have everything you need to do business and make payments on the Internet. Here is a short overview of the obvious advantages and disadvantages.
The advantages of a virtual credit cardA virtual credit card has the following advantages over a classic credit card:
Protection against theft and lossOne of the biggest advantages is that you can no longer get lost or stolen. Unless, of course, you write something like "My access data for my virtual credit card" on a piece of paper, write down all important data underneath and then put it in my pocket. The safest thing to do, of course, is simply to know your data by heart. But even if it's hard to do so, it's usually enough to divide it into two or three places and store it safely in each one.
Quick and easy activationWhen you apply for a new credit card, it usually takes several days or even weeks before you can use it. Not only does it take time to check and process the data provided, it also takes time for the new plastic card to find its way to you by post. Of course, this is not the case with the virtual version, so everything is a little faster.
Overview of costs
As a rule (not always and not generally) you have a very good overview of costs with virtual credit cards, as most of them are also prepaid credit cards. So you cannot spend what you do not have. Many people may see this as the real purpose of a credit card, but most of us are interested in not falling into some kind of debt trap. This is especially important if you want to enable your children or even grandparents to shop online.
Because young and old people in particular can easily become victims of rip-off offers that can cost horrendous sums of money in a very short time. One can put a clear stop to this with a credit limited from the outset. In addition, the same legal provisions apply to virtual credit cards as to real credit cards. This means that you can usually have them blocked directly with a short phone call if you suspect that someone else is accessing or wanting to access them.
You can use your virtual credit card from anywhere in the world once you have access to the Internet. Be it via a computer, a tablet or a smartphone.
No new account necessary
Unlike many conventional credit cards, you don't need an additional account for the digital ones. Instead, you simply transfer a desired amount from your existing account to the credit card and can then spend it while shopping online. However, there are also providers where your account is linked to the virtual credit card. Here, an amount is not directly transferred in advance, but only a part of the account balance is released for the credit card. Once you have spent this amount, it is then debited from your account either as a one-time payment or in three monthly installments.
The disadvantages of the virtual credit card
This is actually quite obvious, because the virtual credit card was created purely for online shopping. Payments at the cash desk of a "real" shop, a deposit of the card as security in a hotel or the withdrawal of cash at a bank machine is of course not possible. For this you would need your cool hologram again.
This is not actually a disadvantage, as it is even desired in order to keep track of costs. It means that you can only spend as much as you have paid in or released before. However, this can be a bit annoying if you forget to refill your credit balance early and are then prevented from making a larger but desired payment. In this case you have to transfer new credit first and in most cases wait one or two days before you can use the card again.
Hidden costs in the form of various fees
Depending on which virtual credit card provider you have chosen, you may incur various fees that you would not even have thought of at first.
The fact that the digital credit card has a limited balance easily leads one to believe that its use is completely safe and that one can no longer be cheated or tricked. This is of course a mistake. Anyone who falls for fraudulent online shops or other rip-off sites can still be ripped off just as easily as with cash or a regular credit card. The only difference is that you can only be relieved of your previously deposited credit. Thus, one is not driven into ruin, but it can still be that one is properly annoyed about the loss. Thus, even a virtual credit card does not spare you the attentive, conscious and above all watchful surfing.
For whom are virtual credit cards useful?
Virtual credit cards or online credit cards are particularly suitable for:
- Fans of online shopping, who do the majority of their shopping over the Internet.
- For children and teenagers whose parents want to enable them to make safe and limited online purchases. In a sense, as digital pocket money, if you will. For this purpose, there are some providers who offer their virtual credit cards to young people from the age of 14.
- People who prefer to be on the safe side when shopping online and therefore do not feel comfortable using their usual credit card for digital purchases. Here it is actually helpful and often safer to use a digital credit card instead.
- Newcomers: If you have never had a credit card before and are not sure whether you can handle it or not, you can test this with a virtual prepaid credit card and thus familiarize yourself with this area without any major risk.
- Low-income earners: Unlike most normal credit cards, you don't have to prove that you have any income at all for a prepaid credit card.
For whom are virtual credit cards less suitable?
Yes, I really don't like to write that, because it's actually all about finding sensible payment methods for travellers. But at least at the moment the digital system still has a number of disadvantages. For example, most hotels do not accept either analogue or digital prepaid credit cards. Also, as already mentioned, there are only very few possibilities to use virtual credit cards in connection with the smartphone for shopping. Of course, you can have a digital credit card as additional security, but unfortunately, you cannot get cash, a hotel room or goods in real shops with it. What can be helpful, however, is to use it to make online bookings, for example to book flights or apply for a visa. But as one needs a classic plastic credit card anyway, it is questionable whether this offers a real advantage. In a few years, however, this may already have changed.
If you are used to moving large amounts of money with your credit card and have to do so for the exercise of your profession, you are rather ill-advised with the limited contingent of credit on a prepaid credit card.
People without own account
Virtual credit card providers usually insist that the applicant for the virtual credit card is also the owner of the account from which money is transferred to the card. It is therefore not possible for parents to issue the card in their child's name but to transfer the money from their own account.
What fees are incurred when using a virtual credit card?
Now we come to one of the most interesting questions regarding virtual credit cards. Namely: What exactly does the fun cost me. This question is actually not so easy to answer, because every provider proceeds differently and there are different levels at which fees can be charged. We have therefore created a list of all the points that can cause costs. If this is not clear from the credit card description of the provider, please check this before applying for the card. Otherwise, it can happen that trying to protect yourself from unnecessary costs on the Internet costs you unnecessarily much money.
In most cases there is no fee for applying for a credit card. The providers usually waive this for marketing reasons alone, as no one wants to scare off their customers by charging fees even before they have something in their hands. Nevertheless, one should not simply rely on it blindly, but clarify whether the application is really free of charge.
This is handled very differently by the card providers. For the provision of their financial services, some providers charge a flat annual fee that you have to pay, regardless of whether or not you have used your credit card even once. Other providers do not charge such a flat rate, but may then charge more for other fees. This is not necessarily the case, but should be checked. Still others do not charge an annual fee, but charge a "monthly service fee" which is basically the same, except that you pay it monthly.
As already mentioned, prepaid credit cards and thus most virtual credit cards only work if you have previously loaded a credit balance. Some providers also allow you to pay this. The most expensive is usually the cash deposit, which can cost up to 5€ per recharge process. Others charge a percentage of the top-up number and others charge no fees at all.
Interest on the credit line
If the virtual credit card is a real prepaid card, where you do not use a credit but a credit balance, there is of course no interest. However, as mentioned above, there are also variants, such as Kredupay's virtual credit card, where the credit is provided in the form of a credit that is immediately available on the credit card and is repaid after 28 days.
So in this case I do not really load money onto the card. Instead, I release a portion of my account balance that can be used in case of a purchase. However, this amount is not charged directly to the purchase from my account, but is advanced by the credit card provider and must then be paid back either in one piece or in several installments. As soon as this has happened, I am of course in the chalk with my provider and he charges interest. Otherwise, he himself would not be able to make my payments. Here it is important to take a close look at how high these fees are and how they can be offset.
Beware of interest trap!
It is also important to pay attention to how payments are balanced. Is it possible to set up automatic payment settlement by direct debit on a permanent basis? Or do you have to transfer money every time? After all, the latter can very quickly turn into a cost trap again. It's easy to lose track and forget to make the relevant transfers. So be careful if a credit card provider only offers compensation by bank transfer. It does not matter whether it is a digital, virtual or analogue credit card. In any case, you should ask yourselves openly and honestly what kind of financial type you are. Are you the type of person who keeps an eye on your finances like an eagle?
If you are 100% sure that you will be able to make the credit card transfers immediately, then there is no problem. You can take this option without hesitation. It is different if you are a bit more sloppy. Do you tend to let one or the other thing fall from your desk into oblivion every now and then? Then we can only advise you to keep your hands off such offers. Especially if the providers work with a staggered interest rate, i.e. they offer you a very low interest rate in the beginning and then let it rise steadily over the course of time as a penalty for delay. Because in this way a small purchase can quickly become a big mountain of debt, simply because it was forgotten.
Fees for use with foreign currencies
As a rule, there are no fees within the euro states even if you use your card from abroad or for purchases abroad. As I said, as a rule. This should also be clarified.
The situation is different, however, if you use your virtual credit card to make payments in foreign currencies. In this case, there is usually an additional fee for converting from one currency to another. This should be considered especially if you make frequent online purchases in the USA or Asia.
You can call this boldly, but some credit card providers (both virtual and classic) allow themselves to block your credit card if you do not use it for a long time. The period of allowed inactivity until the block varies between 6 and 14 months. To unblock the card afterwards, many providers also charge an additional fee.
If you know that you rarely use your credit card, you should clarify the following things before signing a contract:
- How long may the card remain inactive until it is blocked?
- Will I be informed again before it is blocked, so that I have the opportunity to prevent this by spontaneous use? Or do I simply notice that my card is blocked when I want to use it again?
- How much is the activation fee?
- If there is still a credit balance on my prepaid credit card at the time of blocking, will it be usable again after activation, or does it simply expire when it is blocked?
How do I pay with a virtual credit card?
As far as the online market is concerned, a virtual credit card works just like a normal one. This means that you complete your online shopping process as usual, go to the payment area via the shopping cart and then select "credit card" as the payment option. Depending on the provider from which you purchased your digital credit card, it is either a VISA or a Mastercard. Here, one then has to choose the respective option and then, as usual, one enters one's credit card number, the name, the expiry date and the card verification number. Then one clicks on the button with "complete payment" and the online purchase is finished.
Provided, of course, that one has enough credit on the card. If this is not the case, you will get an error message and have to load new credit before you can complete the process.
How to apply for a virtual credit card?
This process is also similar to the application for a normal credit card. You inform yourself about the respective advantages and disadvantages of the offers of different providers. Then you choose the one that suits you best. Then you go to the section of the website where you can fill out your application form. Here you enter all the necessary data. It is possible that a scan of a payroll and/or a registration certificate is required to make sure that you are really living in Germany and can pay your expenses. Afterwards you will receive your access data by mail. In most cases you will also receive a one-time activation code in a separate e-mail or SMS, which you can use to activate your virtual credit card. Now you only have to load it and then you can use your credit card.
Some providers require identification using the PostIdent procedure. Others allow you to do so, but without this procedure, they only allow top-ups of 100€ maximum. This is inevitable, as it is not a decision of the providers. It is a legal regulation in Germany that is intended to prevent prepaid credit cards from being used to launder illegal funds.
What is the PostIdent procedure?
As soon as you want to load more than 100€ at once on your prepaid credit card, you must first be identified by the so-called PostIdent procedure. This ensures that you really are who you claim to be. The most common methods for this are, on the one hand, visiting a post office branch where you present a photo ID. On the other hand - and this is probably the most common method at present - you can also be identified via video chat. To do this, you usually connect directly to an employee via video conference on the provider's website.
It is important that you have your photo ID (identity card or passport), a white sheet of paper and a pen ready. The employee then guides you through the process. First of all you have to hold the ID card clearly in front of the camera. In the second step you hold it so that you can compare the face in the photo with the real one. Afterwards, one has to sign on the white paper live in front of the running camera. Of course, this signature is then also held into the camera. If this is done and there was no technical failure, the process is finished and one is considered as identified.
How do I recharge my virtual credit card?
Depending on the provider, there are various possibilities for this. Besides the credit top-up, which is currently only offered by Kredupay, these are the most common methods:
- Topping up by bank transfer from the account indicated above,
- Cash deposit directly on the credit card at the counter of a financial institution. However, this usually only works if the credit card provider also has branch banks and is not only active online. And then usually only in these branch banks.
- Recharge at petrol stations and in supermarkets. Some providers also offer this if they have cooperation agreements with the corresponding chains.
- Top-up via mobile phone using mobile phone credit. Here you can load the credit card mostly via app with your mobile phone. The money that is then credited to your credit card is either debited from your mobile phone credit or charged to your next phone bill as a phone fee.
- Topping up by instant bank transfer, Giropay or SEPA transfer. A loading by Paypal is not yet possible with all German prepaid credit cards known to us.