If you’ve had to apply for a credit card before, you’re familiar with the wide array of options out there. You likely know the rewards programs, security features, and associated costs that make each enticing its own way.
Over the last decade, the lay of the land has shifted with the advent of virtual credit cards. Boasting new features that make them a unique presence in the market, they’re a worthy option to consider against the physical credit cards we know so well.
But just as different physical credit cards are best fit for different types of users, so too are virtual credit cards.
Whether you’re considering physical versus virtual or just looking to better understand the differences, we have the breakdown you need.
What are virtual credit cards?
Virtual credit cards (or simply “virtual cards”) are strictly digital temporary credit cards used for online payments. These cards have the same information (credit card number, expiry date, and CVV) as physical cards.
A virtual credit card can either be a part of a standalone credit account or be an addition to a credit account you already have.
Standalone virtual credit cards must be applied for, similar to traditional credit cards. They have their statements, billing cycles, and balances that need to be tended to.
However, additional virtual credit cards that are connected to an existing credit account are easily generated with all transactions being billed to the main account. In some cases, virtual cards are generated for as little as a single transaction to keep your account information safe.
What are the benefits of virtual cards?
A newer technology, virtual credit cards come with innovative features that make them an enticing option for businesses looking to improve their expense management.
Increased security
When you use a virtual card to complete a purchase, your account information is protected in the case of a fraudulent vendor or security breach.
Instead of giving your credit card information, you can generate a virtual card for one-time use or have controls that limit the places the card could be used. If someone were to get hold of your virtual card information, they wouldn’t be able to use it to rack up unwanted charges.
You get the convenience of using online credit card payments but without the security risks that come with them.
If at any time a virtual card is compromised, it can be easily frozen at the click of a button.
Streamlined team expense management
Whether it’s a reimbursement process or submitting expense requests, the admin work required to manage expenses ways down the efficiency of your financial team. They’ll be too busy sifting through paperwork to focus on big picture tasks.
This changes with virtual cards. Cards can be generated for specific teams or employees with different controls that act as a pre-approval process.
For example, if the IT team is looking to upgrade the tech they use, you could generate a virtual card that’s limited to your preferred computer supplier with a set credit amount ensuring they don’t go over budget.
Better monthly budgeting
For businesses trying to keep spending levels within an expected amount, virtual credit cards help keep control and make managing budgets a breeze.
Virtual cards have budgets you can set so that any expenses over and above will be rejected.
When it comes time to see how much more budget a team has to spend, simply check their virtual card balance and you’ll get a clear breakdown of what they’ve spent their money on and how much they have left.
Subscription management
Juggling subscriptions and their costs is a common pain point for finance teams. But virtual cards help you take back control so you’re never overspending on anything unwanted.
Say you just started a new subscription that charges for additional features. Simply generate a virtual card for that vendor with a monthly credit limit for your expected monthly charge. If the provider tries to upcharge you, the charge gets rejected.
What are the drawbacks of virtual cards?
While virtual cards have enticing features, they may not be a fit for you. Some of these drawbacks make them a worse fit depending on the intended purpose of the card.
In-person transactions
Virtual cards are designed for online purchases. They don’t have a physical presence which makes it difficult to use for in-person payments unless they can be stored on a digital wallet (like our virtual cards).
In some cases, a card needs to be presented in person as part of the confirmation process. A common example of this is hotels which often require guests to provide the credit card that was used for the booking.
Processing returns
Sometimes what you get isn’t what you paid for and you need to go through a returns process. If you use a virtual card, this may cause some difficulties.
If a retailer requires a refund to be processed on the same card, but the virtual card has been deprecated, you may have to opt for taking the refund as store credit. Otherwise, it’s not possible to process the refund to the parent credit account.
Updating billing information
If you’re constantly updating and generating new virtual cards for different purposes, any saved payment information is going to quickly get outdated.
This means you’re having to re-enter payment information on every purchase, or updating the information on file.
To avoid this, have virtual credit cards dedicated to vendors you’ll have repeat purchases with. Then, use the controls available to you to manage any activity on the card, like restricting it to the vendor and for certain billing amounts.
What are physical credit cards?
Physical credit cards are what we traditionally think of when we talk about credit cards. They are cards often made of plastic that have their information printed on them and are also usable at point-of-sale terminals or ATMs.
Most commonly, these cards have separate credit accounts issued by a bank or financial institution. This means if you want another credit card, you need to go through the application process again.
What are the benefits of physical credit cards?
Physical credit cards are tried and true for good reason. Here are some of the benefits when choosing a physical credit card.
Widely accepted
The history of a revolving credit card dates back to 1958. For over six decades, businesses have been accepting credit cards as a payment method with confidence.
Whether it’s for online payments or in-person transactions, the vendor knows that a payment they process will be backed by an established financial institution.
Very rarely will physical credit cards not be accepted. If that’s the case, it’s unlikely they’re accepting virtual credit cards as an alternative.
Easy to use for offline purchases
In those cases where a physical card needs to be present, you need to opt for the traditional credit card.
This may be for making a purchase through a point-of-sale system or presenting a card as part of the confirmation process.
You won’t have to worry about figuring out a new piece of technology to figure out how to make offline purchases. This can be especially helpful if there’s anyone who’ll be using the card who’s a tad tech adverse.
Can be physically restricted
If you’re drawn to the idea of having a literal cardholder policing what transactions can go through, a physical credit card has its perks.
By having the credit card only provided once a potential transaction is approved, you can rest assured that it’s in the hands of a trusted individual approving purchases as they’re requested.
If you choose to go this route, be prepared for the heavy administrative left of managing and monitoring the card.
What are the drawbacks of physical credit cards?
When comparing to virtual credit cards, physical credit cards have some drawbacks to consider before committing.
Potential of loss or theft
Just as a physical card can give a sense of confidence that it can only be used if in hand, that’s also a risk factor to consider.
Having a card get misplaced or go missing is extremely stressful. It’s easy for someone to use a physical card for fraudulent purchases both online and off.
While security has improved on physical cards, this is still a substantial threat and any lost cards should be reported as soon as it’s noticed.
In the case you need to cancel a credit card, this could potentially hurt your credit score in the process.
Less spending controls
When compared to their virtual alternatives, physical cards are often lacking in their spending features.
While virtual credit cards have controls that let you create the perfect card that enables spending on what you approve and prevents what you don’t, you’re less likely to find the same functionality on a physical credit card.
For the most part, you’re depending on expense reports and approval processes to manage spending with physical credit cards.
Reduced spending transparency
When you comb through a credit card statement, you don’t see what team or employee is responsible for each transaction.
Compare that to virtual credit cards which can provide a completely segmented breakdown of spending by card.
This will slow down the process of checking in on team spending and budgets. You’ll need to do some manual work to bucket transactions and sum up amounts to get the same level of insight.
Comparing physical and virtual credit cards
Below is a table to make the comparison of virtual credit cards and physical credit cards easier.
Which card is right for you?
Both virtual and physical credit cards have their unique strength—in fact, many businesses will use a combination of both.
To help you decide which card is best for your needs, ask yourself the following questions.
Will the card be used for primarily online or offline purchases?
This will be one of the biggest and simplest factors to help you decide which credit card will be a better fit for your needs.
If the credit card needs to be used in person, a physical credit card will be the better fit.
Meanwhile, the added security and fraud protection virtual cards offer make them an ideal fit for online purchases, like managing your digital advertising spend. This will give you confidence that your precious credit card information won’t fall into the hands of the wrong people.
Example: A plumbing company needs to provide credit cards so employees can buy parts to complete their jobs. The company would opt for a physical card if the purchases are made in person, but could consider a virtual card if payments are processed online.
How many people will need to use the card?
The more people that need to use the card, the more flexibility a virtual credit card starts to offer.
A physical credit card suffers from an exclusivity problem: if one person is holding the card to use it, it can’t be used by someone else.
This isn’t a problem with virtual cards which can be easily accessed and used by anyone at any time.
These can be either pros or cons depending on how you want your financial process to look. Would you rather credit card use be potentially over- or under-restricted? Start by considering the option that best aligns with how much spending freedom you want to offer.
Example: The digital ads team needs a credit card to make payments on the ads platforms they’re using. A team of one could use a physical credit card, but larger teams could consider a virtual card to make sure everyone has access when they need it.
Do you want built-in spending controls?
Virtual cards are accessible for employees to use, almost to a fault. That’s where spending controls come in.
Featuring ways of limiting transactions to specific merchants, expense types, and amounts, you can create a card that only facilitates what would be approved expenses.
You won’t have the same level of automated control with physical cards. Instead, managing spend will be a largely manual process. But it saves time when compared to a lengthy reimbursement process.
When considering the two options, think about what the volume of transactions will be. If the expected transaction amount is high, you might be better off opting for the automated approach.
With BILL Spend & Expense, you get spending controls on both virtual and physical cards. Emergency Plumbing Heating & Air uses controls on corporate cards to ensure their employees stay on budget while covering necessary costs in the field.
Example: A startup that’s cash conscious and counting every dollar may choose a physical card and formal procurement process, but switch to virtual cards with spending controls as their operations expand and the procurement process becomes a bottleneck.
What level of spending breakdowns do you need?
A major perk of virtual cards is being able to segment spending by team. Instead of spending time crunching the numbers, you get immediate insight into who is spending what.
However, for businesses that already have an accounting and reporting process in place, this could be a feature that goes unused.
Whether you want to track spending on a platform you already use or by using the virtual cards native reporting is a factor you should consider when choosing.
Example: A business with a clearly defined and smooth operating procurement process may have that workflow disrupted by switching to a virtual card. But if a business has a blank slate to build from, the array of spending insights virtual cards offer is a great starting point.
Choosing a card that does more for you than purchasing
Whether it’s a virtual or physical credit card, BILL Spend & Expense gives you more than just access to credit.
Featuring an intuitive platform with robust reporting options, you can turn your historical spending data into valuable insights that help you budget, forecast, and plan for the future.
Manage your spending with BILL's virtual card as a step towards mastering your finances.
