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Payments
12 min

Virtual Card Payments: How They Work And Benefits For Your Business

See how virtual card payments help your business pay vendors faster, more securely, and with better spend control.

Published at | Updated:
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Key takeaways

  • Use virtual card payments to pay vendors faster while keeping your real card details hidden through tokenization.
  • Choose single-use virtual cards to limit each number to one transaction, which lowers the risk of fraud and duplicate charges.
  • Set spending limits, expiry dates, and merchant restrictions on virtual cards to control business spending in real time.
  • Integrate virtual card payments into your accounts payable process to speed up reconciliation and hold onto working capital longer.

What is a virtual card payment?

A virtual card payment is a payment made with a digital-only card number, created for a single transaction and hidden from the merchant. It works like a credit card but exists only online.

A virtual card is a digital credit card with a unique, randomly generated 16-digit number that is used only for a specific transaction. Essentially, a virtual card is a type of temporary credit card, ideal for online payments, and for other payments in which a credit card is not present.

Virtual cards as a B2B payment method are becoming increasingly popular. This is partly due to the fact that virtual cards offer increased control over payments. Businesses can set limits on spending with virtual cards based on several parameters, such as the amount, the date or time period of the payment, or the specific merchant or payee to whom the payment will be made.

In 2025, the B2B segment accounted for around 70% of the global virtual cards market.

How virtual cards work

Virtual cards work by generating a unique 16-digit number, expiry date, and CVC for a single payment, then sharing those details with the vendor.

Virtual cards work much the same way as physical credit cards. Like traditional credit cards, the virtual card has a 16-digit number, expiry date and CVC code, which is provided to the business for the payment.

Businesses that accept credit cards can typically also accept virtual card payments. Virtual cards are available from most credit brands and banks, including Visa, Mastercard, American Express, Chase, Capital One, Citi and many more.

When a virtual card is created, it is assigned a randomly generated number, which is used for a specific, one-time payment. The virtual card is connected to the customer’s actual credit details, however these are hidden from the business or payee via tokenization. Tokenization is a security method that gives sensitive information a unique identifier (token), which is encrypted so it can’t be accessed or revealed. This makes the virtual card payment process highly secure and safe.

How do virtual cards differ from physical cards?

Virtual cards and physical cards work in much the same way, enabling the customer to pay via credit, rather than cash or check. However, there are key differences – the most notable being that a regular credit card is a physical card, while a virtual card is digital only. Even so, both physical and virtual cards can be added to mobile wallets, so customers can use the contactless tap-to-pay method with their smartphones for both card types.

Physical cards have a permanent 16-digit number, expiry date and CVC security number, while virtual cards have a randomly generated 16-digit number that is completely unique, as well as a unique expiry date and CVC number. Virtual cards are created and used only for one specific payment, while physical credit cards can be used anywhere and anytime, as long as the cardholder does not go over their set limit.

Types of virtual cards

There are several types of virtual cards that are suitable for a range of purposes. Let’s take a look at each in turn:

Single-use virtual cards

Single-use virtual cards (SUVC) can be used for a one-time purchase. They are randomly generated with a unique credit card number for an exact specified amount, and sent to the payer by email. The virtual card details are then provided to the payee, and the transaction is complete.

Businesses should accept single-use virtual cards as they provide a secure, convenient payment method that many customers may prefer. Customers can pay online or over the phone via card without needing to expose their sensitive credit card details to the business or to potential security threats.

Prepaid virtual cards

Prepaid virtual cards are loaded with a specific dollar amount, which can be funded via bank transfer from the cardholder’s bank account or their credit card. Virtual prepaid cards can be used anywhere that virtual cards are accepted, up to the amount contained in the card. They are a convenient way to limit spending, ensuring that the cardholder cannot exceed the prepaid amount.

Corporate virtual cards

Corporate virtual cards are designed specifically for businesses who issue the cards to employees or departments for managing expenses. Unlike physical cards, corporate virtual cards are entirely digital, with unique, single-use or time-limited numbers for each transaction. They are linked to the company’s bank account or credit line, offering control and security for corporate spending.

Travel virtual cards

Like traditional credit cards, some virtual cards offer perks and benefits, including cashback, points, or other rewards. Travel virtual cards provide benefits specifically focused on travel, such as airport lounge access, travel points, hotel credit, and more, making them very attractive for business travel purposes. Companies can provide employees with virtual cards for use during business trips and keep tighter control and security around travel expenses.

How to pay with a virtual card

Paying with a virtual card takes a few minutes and needs no physical card. Follow these steps to send a payment.

  1. Create a virtual card for a set amount, merchant, or invoice.
  2. Receive the card number, expiry date, and CVC by email within seconds.
  3. Share those details with the vendor online or over the phone.
  4. The card deactivates once the payment clears, so it cannot be reused.

Benefits of using virtual card payments

No payment method is perfect. Rather, each has its benefits and drawbacks, depending on the need and user. For businesses, using virtual cards to pay vendors and expenses comes with several pros that outweigh the cons. Here are the key reasons why a business may choose to use a virtual card to pay and get paid:

Enhanced security and fraud protection

In 2024, the FTC received 449,032 reports of credit card fraud in the US, from people whose details were misused on an existing card or a new card application. For businesses that want to use credit cards to send or receive payments while reducing the associated risks, virtual cards are a good option. Here’s why:

  • Virtual cards use tokenization to encrypt sensitive information, so it is inaccessible to the merchant or anyone else.
  • The card uses randomly generated numbers that are good for the specific invoice only.
  • Once the transaction is complete, the virtual card details are rendered inactive, providing excellent protection against duplicate charges and other errors.
  • Virtual cards can also be set to expire by a certain time if a payment is not made.
  • Virtual cards have a liability waiver, which means if a virtual card carries a fraudulent charge, the credit company will cover the loss.

All this adds up to strong fraud protection that is extremely desirable to businesses.

Convenience and flexibility

Paper checks and cash were once the staple payment method for business-to-business transactions, but this is rapidly changing. More businesses are using ACH transfers, credit card, virtual cards, and other digital methods to pay vendors or receive payments from customers. A key reason is the ease and flexibility of online payments.

Virtual cards are a fast and convenient way to pay. Businesses can create a virtual card for a specific merchant, invoice, or amount, and receive it within seconds to their email. The virtual card details can be supplied to the merchant online, by phone, or email, and the transaction is ready to go, without needing to wait for physical credit cards or checks.

Cost-effectiveness

Virtual card payment processing is practically instant, and the life of a virtual card is strictly limited to the payment, time period, or merchant. There is no manual workload involved, so the costs associated with payments processing are typically lower.

Furthermore, checks and other traditional payment methods have high fees. Virtual cards eliminate those expensive added costs. With Melio, for instance, a business that chooses to receive payments via single-use virtual cards have 0% added fees, and transactions incur only the standard POS processing fee.

Better control over spending

Many businesses use virtual cards to better oversee and control employee spending and business expenses. With virtual cards, businesses can set predefined spending limits, expiry dates, and other usage restrictions for each card, which helps to prevent overspending. Also, virtual card transactions are tracked in real-time, making it easier to match purchases with expense reports and keep a closer eye on spending patterns.

Reduced risk of identity theft

Since virtual cards are digital, there is no physical card that can be lost or stolen, eliminating the opportunity for identity theft. Virtual cards use tokenization to encrypt and hide the payer’s information, reducing the chance that their identity can be stolen. Overall, virtual cards offer a safe alternative payment method, both for individuals and businesses.

Best practices for protecting your virtual card

While virtual cards are a safe choice, you can take further steps to prevent misuse and fraud, and protect your business spending:

  • Limit the payment amount: Assign appropriate limits to virtual cards to control spending and avoid unauthorized purchases. This is particularly important for businesses that provide multiple cards to large numbers of employees.
  • Choose single-use virtual cards or merchant-specific cards: Limit virtual card use to one-time transactions or specific merchants.
  • Set real-time alerts: Turn on notifications for virtual card transactions to monitor activity and keep track of day-to-day usage of virtual cards.
  • Use a trusted virtual payment solution: Choose a payments platform like Melio that supports virtual cards as a payment method. The built-in security features give you even more peace of mind that your virtual card payments are monitored, recorded, and safe.

Impact of personal credit on business credit card approval

Especially for small or new businesses, personal credit may have a strong impact on the process of getting approved for a business credit card. This is because many business credit cards require a personal guarantee, meaning the card issuer reviews the personal credit score of the applicant to determine creditworthiness.

A higher personal credit score increases the chances of approval for a business credit card.

Virtual cards are usually issued by the credit card provider, so approval is based on the same criteria as the primary business credit card. After the business card is approved, virtual cards can be issued to employees without needing further personal credit checks.

Essentially, virtual cards enable businesses to provide a kind of business credit card to their employees, without needing every team member to go through personal credit checks.

The impact of virtual cards on accounts payable

For many businesses, accounts payable is complicated, involving dozens of invoices and payments that need attention at any given time. Larger businesses may have multiple employees paying expenses as part of their day-to-day activity.

Virtual cards help to streamline accounts payable by removing much of the manual workload. Each virtual card transaction includes detailed payment data, such as the amount, date, and merchant, that integrates automatically into the accounts payable systems, making it much easier to track business spending. This leads to greater efficiency, fewer errors, and quicker reconciliation of transactions. The quicker payment process also enables businesses to hold onto larger sums for longer, increasing working capital.

Also, many virtual cards offer cash-back rebates, which can offset payment processing costs. Choosing a virtual card with benefits and perks, such as travel points, can also get better returns for regular business expenses.

When it comes to accounts payable vs accounts receivable, virtual cards are also an effective way to get paid by customers. With Melio, businesses can choose to receive all their payments with single-use virtual credit cards, regardless of how the customer pays. This even reduces processing fees, with no extra charge above the standard POS processing cost.

Virtual cards are the new reality

As the world continues to digitize, more businesses are looking for feasible payment options that are reliable, fast, and secure. More than almost any other method, virtual cards tick all the boxes.

Whether paying invoices or receiving money from customers, virtual cards are fast becoming the payment method of choice for businesses small, medium, and large.

Ready to pay and get paid your way? Sign up for Melio and start using virtual card payments today.

Virtual card payment FAQs

What are the disadvantages of virtual cards?

Virtual cards only work where cards are accepted, and some vendors still prefer other methods. Single-use cards also need to be created for each payment.

How long does a virtual card take to process?

A virtual card can be created in seconds and processes as fast as any card payment, often on the same day.

How do I pay someone with a virtual card?

Create the card for a set amount, share the number, expiry, and CVC with the vendor, and the payment goes through like a normal card transaction.

Are virtual card payments safe?

Yes. Virtual cards use tokenization to hide your real card details, and single-use numbers stop working once the payment clears.

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