Virtual Credit Cards Tout Safety, Yet Consumers Take a Pass

Getting a virtual credit card

One upside of virtual credit cards, besides their security features, is that they're free.

To use one for an online transaction, you first must obtain a single-use credit card number from your credit card company, if it offers them.

American Express did away with its virtual card offering a few years ago. Now, only a handful of major banks offer virtual cards, and their numbers are dwindling.

Citi still offers disguised credit card numbers, known as VAN or Virtual Account Numbers, to its clients who are shopping online or by mail order.

Bank of America provides its online banking customers with a service called ShopSafe that lets people make secure Web-based purchases, as well as ongoing monthly payments, with a virtual credit account.

But Discover, which had long offered virtual cards known as Secure Online Account Numbers, is discontinuing them as of March 14.

"Regrettably, the technology on which Secure Online Account Numbers are based is owned by MasterCard and no longer available to us, so we are unable to continue to offer it to cardmembers," Discover said.

Suppliers of virtual cards use proprietary technology from a company called Orbiscom, a Dublin-based payment processing company that was acquired by MasterCard in 2009.

A tough sell to consumers

Ben Woolsey, president of CreditCardForum.com, says it's difficult to get consumers to master all the basic benefits of a credit card, let alone more complicated offerings like virtual cards.

"Regardless of how much banks tried to advertise the availability of this service, they couldn't break through a certain limited awareness of virtual credit cards by their customers," Woolsey says. "Not to mention overcoming the inertia of going through all the necessary steps to set them up and use them among those who are aware," he says.

And even among those individuals, there's typically only "a certain subset of users who would care enough to sign up," Woolsey says.

Woolsey says several other issues have also prevented these cards from gaining widespread popularity.

"They can make returns and disputed charges with merchants problematic," Woolsey says. "With most returns [of purchases] made with a credit card, stores refund it back on a card. But they can't with a one-time use number."

Depending on a merchant's return policies, store credit may be issued in lieu of refunds. In other cases, consumers may be able to get refunds by check.

To deal with the potential hassles in the event of a return or refund request, Woolsey recommends keeping all electronic receipts, confirmation numbers or other documentation about purchases made via a virtual account number.

He and others say that Americans also aren't motivated to use disposable credit cards because consumers know they won't be held responsible for fraudulent charges.

Thanks to the Truth in Lending Act, liability for any unauthorized purchases made before you report a lost or stolen credit card generally is limited to $50. What's more, most major banks offer "zero liability" protection for fraudulent charges reported within 60 days. So in the event your card is compromised, you generally won't be on the hook for any amount as long as you promptly report the charges.

Another limitation of single-use cards: You can't use virtual card numbers inside retail stores or at any merchant where you need to show a physical card as proof, such as a hotel, car rental agency or movie theater.

"Virtual account numbers can add a degree of security to online transactions, but by and large they have been a solution in search of a problem," Woolsey says.

Consumers must remain vigilant

Even a more widely accepted alternative payment system such as PayPal, which lets anyone with an email address sign up to send and receive payments from other individuals, isn't without its own pros and cons, experts say. Nor is it immune to security breaches.

Users link their bank accounts or credit cards to PayPal, and access PayPal by entering their email address and a password. Such email password security has its own limitations, since some people are lax about establishing strong passwords.

According to the 2014 Identity Fraud Study from Javelin Strategy & Research, there were 13.1 million U.S. victims of identity theft in 2013 — a new victim every two seconds.

"Additionally, fraudsters increasingly turned to eBay, PayPal and Amazon with the stolen information to make purchases," Javelin researchers said.

All told, identity thieves stole $18 billion last year, including credit card fraud, compromised lines of credit and email payment accounts.

Such high levels of fraud show the need for vigilance. To learn more, visit AARP's Fraud Watch Network.

"In the end," Woolsey says, "no matter how much security banks layer into credit cards, consumers still have to monitor their credit card statements and be watchful."