Physical card vs. virtual card: Maximizing your credit card payments

In the evolving digital finance landscape, physical and virtual credit cards have become pivotal considerations for consumers looking to optimize their payment strategies.

Both options offer distinct advantages that cater to different needs and preferences, as shopping with virtual money offers many benefits over cash. Physical cards, the traditional choice, provide a tangible means of transaction and are widely accepted at brick-and-mortar stores.

On the other hand, virtual cards, which exist solely in digital form, offer enhanced security features and are increasingly favoured for online shopping and subscription services.

Understanding the benefits and potential limitations of each can empower consumers to make informed decisions, ultimately maximizing the efficiency and security of their credit card payments.

What is a physical card?

A physical credit card is a tangible payment tool featuring a unique 16-digit card number, expiration date, and often a security code. These cards are widely used for various transactions, including business purchases. They are versatile, supporting both online and offline transactions.

You make payments by physically swiping, inserting, or tapping at a terminal. Additionally, by manually entering the card details, physical cards can be utilized for card-not-present transactions, such as shopping online or over the phone.

What is a virtual card?

A virtual credit card is a digital-only payment tool featuring a unique 16-digit card number, expiration date, and often a security code, similar to a physical card. Virtual cards provide a digital version of your physical credit card or debit card for online transactions. They offer flexible usage options catering to different transactional needs, including single-use, multiple-use, or revolving types.

One of the key advantages of virtual cards is their instant creation, providing immediate access to a secure payment method, unlike physical cards, which typically require 1-2 weeks to be printed and mailed. It makes virtual cards an efficient and secure alternative for online shopping and subscription services.

Security and risks of physical and virtual credit cards

Physical credit cards come with certain limitations. They require the user to carry the card at all times for in-person transactions, which can be inconvenient. If a physical card is lost or stolen, the replacement process can take several days, during which time the user may not be able to access their account. Additionally, physical cards can wear out or become damaged, potentially leading to issues at the point of sale.

Enhanced security with virtual cards

In contrast, virtual cards offer a higher level of security by eliminating the risk of physical theft and skimming, as they exist solely in digital form. They can be locked and unlocked as needed, and many provide the ability to set spending limits, adding an extra layer of control. Virtual cards are especially advantageous for online transactions, as they reduce the risk of data breaches and identity theft by providing a disposable or limited-use card number, thereby protecting the user's primary account information.

Convenience and ease of use

Physical card limitations

Physical credit cards, while familiar and widely accepted, come with certain limitations. They require the user to carry the card at all times for in-person transactions, which can be inconvenient. If a physical card is lost or stolen, the replacement process can take several days, during which time the user may be unable to access their account. Additionally, physical cards can wear out or become damaged, potentially leading to issues at the point of sale.

Virtual card advantages

Virtual credit cards have pros and cons that are important to understand. Virtual cards offer significant convenience and ease of use. They can be generated instantly, providing immediate access to funds without waiting for a card in the mail. Virtual cards eliminate the need to carry a physical card, reducing the risk of loss or theft.

Virtual credit cards are great for online shopping and subscription services, allowing users to manage their cards digitally. Many virtual cards can be managed through mobile apps, offering features such as spending limits, instant locking and unlocking, and detailed transaction monitoring, all of which enhance user control and convenience.

Online purchases and subscriptions

Virtual cards are particularly well-suited for online shopping and digital transactions, offering enhanced security by reducing the chances of theft or fraud. Businesses can utilize virtual cards for subscription services and recurring payments, gaining more control over their financial operations.

With the ability to generate unique card numbers for each transaction, virtual cards offer superior security and accountability compared to physical cards, making them an excellent choice for online purchases.

Employee expenses and control

Virtual cards provide an efficient solution for managing employee expenses. Businesses can issue virtual cards to multiple employees, setting unique spending limits and approved vendors for each card.

This customization can be based on individual spending patterns or specific requirements. Virtual cards can be issued for general or specific usage, enabling precise control over business expenses and reducing the risk of unauthorized spending.

Single or one-off purchases

For single or one-off purchases, virtual cards offer a high level of security and convenience. They can expire after a single use, minimizing the risk of fraud. Businesses can generate virtual cards for purchases that require specific vendors or for transactions that need to adhere to an amount or spend limit. This flexibility allows businesses to manage their finances more effectively while ensuring secure transactions.

More control over payments

Virtual cards offer businesses enhanced control over their payment processes. They enable the creation of unique card numbers for each transaction, which can be configured with specific spending limits, expiration dates, and approved vendors.

This level of customization reduces the risk of unauthorized transactions and helps ensure that payments are made only to intended recipients.

Additionally, virtual cards can be easily locked or cancelled if suspicious activity is detected, providing an extra layer of security.

Detailed spending insights

One of the significant advantages of virtual cards for accounts payable is the detailed spending insights they provide. Virtual cards allow businesses to track every transaction with precision, capturing essential data such as the amount spent, the vendor, and the transaction date.

Detailed reporting facilitates better financial management and analysis, helping businesses identify spending patterns, optimize budgeting, and improve overall financial planning. Enhanced transparency and accountability also simplify the reconciliation process, making it easier to audit and verify expenses.

Choose a virtual card provider

Select a bank or financial institution that offers virtual card services. Many major banks, credit card issuers, and fintech companies provide virtual card options. Research different providers to find one that suits your needs, considering factors like fees, features, and user reviews.

Open an account

Open an account with your chosen provider if you don't have one already. It may involve completing an application and providing necessary identification and financial information.

Ensure that the provider offers virtual cards as part of their service package before committing to opening an account.

Access the virtual card

Once your account is set up, log into your online banking portal or mobile app. Navigate to the section that offers virtual card services. This might be under credit card services, digital wallets, or a dedicated virtual card section. Familiarize yourself with the interface and options available for managing virtual cards.

Generate a virtual card

Follow the instructions to generate a virtual card. You may be asked to specify spending limits, expiration dates, and usage restrictions. Some providers allow you to create multiple virtual cards for different purposes. Customize the card settings to match your specific needs and preferences.

Retrieve your card information

Once generated, the virtual card will display a unique 16-digit card number, expiration date, and CVV code. This information can be used immediately for online purchases and other digital transactions. Keep this information secure, just as you would with a physical card, to prevent unauthorized use.

Add to your digital wallet

For added convenience, you can add the virtual card to a digital wallet like Apple Pay, Google Pay, or Samsung Pay, allowing you to use the card for contactless payments where accepted. This integration can streamline your payment process and enhance security using your mobile device’s authentication features.

Manage your virtual credit card

Use your provider’s online portal or mobile app to monitor transactions, adjust settings, and manage your virtual card. Many platforms offer real-time alerts and detailed transaction histories to keep track of your spending. Regularly reviewing these details can help you stay on top of your finances and quickly identify any suspicious activity.

Travel considerations for physical and virtual cards

Physical cards

When traveling, physical credit cards are often essential due to their widespread acceptance. They can be used at most international destinations, including restaurants, hotels, and shops. However, travelers should be aware of potential foreign transaction fees, which can add to the cost of using their card abroad.

It's advisable to inform your credit card issuer of your travel plans to prevent your card from being flagged for unusual activity. Additionally, carrying a physical card can be risky due to the possibility of loss or theft, so it’s wise to keep a backup card in a separate location.

Virtual cards

Virtual cards offer several advantages for travelers, particularly for online bookings and digital transactions. Since virtual cards are not physically present, they eliminate the risk of being lost or stolen. They can be generated instantly for specific purchases, making them ideal for last-minute bookings or transactions requiring enhanced security.

However, virtual cards may not be accepted everywhere, especially in locations without reliable internet access or places that require a physical card for verification. It’s also important to check if your virtual card provider supports international transactions and to understand any associated fees.

Pre-trip preparations

Prepare for your travels by checking the acceptance of physical and virtual cards at your destination. Ensure your cards are enabled for international use, and consider carrying both types for maximum flexibility.

Download the necessary mobile apps and set up virtual cards if you need them. Understanding the local banking and payment infrastructure can help you decide which card type to rely on more heavily during travels.

During travel

While travelling, use virtual cards for online purchases and reservations to minimize the risk of fraud. For in-person transactions, rely on physical cards but keep them secure and monitor your accounts regularly for any unauthorized activity. Take advantage of mobile wallets that support virtual cards for contactless payments where available.

Emergencies

In an emergency, such as losing your physical card, having a virtual card as a backup can be invaluable. Virtual cards can be issued or reissued quickly through your banking app, providing continued access to funds. Additionally, knowing how to contact your card issuer is crucial for promptly addressing any issues.

Sign up for a KOHO virtual card today

The KOHO virtual credit card allows you to shop without a physical card while earning cash back on every dollar spent. With the KOHO app, you can instantly unlock your virtual card and benefit from advanced security features that protect against fraud and cyber threats. This card is handy for travellers and online shoppers seeking a secure and flexible payment option.

KOHO offers an overdraft protection service providing up to $250 in zero-interest cash advances to help you manage unexpected expenses without disrupting your budget. Monitor your credit profile with a free credit score report and get insights on improving your creditworthiness.

Explore plans for spending and saving to help you achieve your financial goals. For example, our high-interest savings account lets you earn higher interest rates on every dollar deposited than traditional accounts.

For businesses seeking enterprise solutions to support operations and enhance financial management, KOHO for Business accounts provide the funding and tools needed to streamline your financial processes.