The advent of digitalisation in businesses and personal finance has introduced so many new terms into our lives. Financial technology, or fintech, is one of the most prominent, and it’s an industry that’s growing exponentially. So, it’s no surprise that you may have come across the term ‘virtual debit card’ and wondered what it is.
In short, a virtual debit card is a digital version of a regular debit card. It’s linked to your bank account in the same way, but you don’t receive a physical card. Instead, you use an app on your smartphone or computer to generate a unique card number for each purchase you make.
But every once in a while, the fintech industry introduces something that makes people question it or have doubts. And the virtual debit card is one of those things. So today, we'll be discussing the common pros and cons of using a virtual debit card and the significant differences between a virtual debit card and a physical debit card.
What is the difference between a virtual debit card and a physical debit card?
While both the cards have a 16-digit card number, expiration date, and CVV code, the physical debit card gets this information embossed on the plastic. In contrast, the virtual debit card stores this data in an encrypted form on the server.
With physical cards, you can make purchases in-store or online. Further, you can use it to withdraw cash from ATMs. A virtual debit card, on the other hand, can only be used for online purchases.
Another key difference between a virtual debit card and a physical debit card is that a virtual debit card is not connected to your bank account in the same way. When you use a physical debit card, the funds are taken directly from your bank account. With a virtual debit card, however, the funds are taken from a prepaid account that you top up in advance. This account is sometimes called a ‘digital wallet’.
What are the advantages of a virtual debit card?
1. Money management and tracking
2. An extra layer of security
3. No hidden fees
4. Easy international payments
Money management and tracking: Large organisations use high-limit corporate credit cards for day-to-day business expenses, however, it is difficult to keep a track of your budget in such situations. That's when instant virtual debit cards come in handy. With these cards, you can set spending limits and get in-depth spending analytics which enables you to stick to your budgets. This way, you can save yourself from overspending or worrying about losing money on unnecessary aspects of the business.
An extra layer of security: With virtual debit cards, you get an extra shield of security. That means that you can generate one-time use card numbers for making payments, instantly cancel them anytime you want and have an entire control of your transactions. Additionally, these cards allow you to create an unlimited number of virtual cards in seconds with custom spending limits.
No hidden fees: Usually a physical debit card is linked with your bank account and transactions you make are free of cost, however, some banks might charge you for availing the ATM services or getting a physical copy of your statement. Whereas, instant virtual debit cards are not linked with your bank account, so there are no such hidden fees associated with them.
Easy international payments: When you're making an international payment, a physical debit card might not be of much use to you as it is difficult to find merchants who accept them. In such cases, a virtual debit card comes in handy as it can be used for online payments anywhere in the world.
What are the disadvantages of a virtual debit card?
Limited use: The main disadvantage of having a virtual debit card is that it can only be used for online transactions. So, if you want to use it for making purchases in-store or withdrawing cash from an ATM, you are out of luck!
Prepaid account: Another downside of virtual debit cards is that they’re not linked to your bank account in the same way. When you use a physical debit card, the funds are taken directly from your bank account. With an instant virtual debit card, however, the funds are taken from a prepaid account that you top up in advance. This means you have to be careful to not spend more than what you have in your account.
While businesses traditionally relied on credit cards and physical debit cards, they have recently adapted virtual debit cards as they enable smoother business transactions. Apart from traditional banks, there are many digital banks and financial platforms that provide instant virtual debit cards. You can get your business banking started with wamo and get your instant virtual debit card in 10 minutes.