Virtual Credit Card Numbers: Extra Safety or False Security for Online Shoppers?


With all the hackers in the headlines -- the Sony PlayStation hacking fiasco (SNE) in April, then Tuesday's threat to "kill" Facebook -- you might be starting to feel a bit more hesitant to offer up your sacred credit-card digits online. One secret weapon, of sorts, aims to keep identity thieves at bay: virtual credit-card numbers.

Many major banks and credit institutions offer some version of this free service. Virtual credit card numbers aren't new, but they remain under the radar for many consumers. Are they the best-kept secret in online shopping, or is the security they promise just an illusion?

Here's what you need to know to decide for yourself:

How They Work

If your card issuer offers virtual credit-card numbers, all you have to do is log in to your account and follow the steps to generate a new virtual number each time you shop online.

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After you apply -- and get approved -- for the program, you get an email with a virtual 16-digit card number and a virtual three-digit card-verification code that you can use in place of your bank-account or other credit-card number, says Michael Germanovsky, editor-in-chief of

When you make a purchase, you simply use the newly generated number instead of your real account number. Each virtual account number is tied back to your actual credit-card account, so any transactions you make with the virtual numbers appear on your statement like all your other purchases, explains Beverly Harzog, credit-card expert for

The process varies slightly by issuer. But, generally speaking, you shop online as usual, except that you request a virtual number before checking out and use that number in place of the usual one. The virtual card numbers come with an expiration date, which -- in some cases -- you're able to choose. Some companies issue virtual numbers that can only be used once, while others allow the same number to be used multiple times at the same merchant, says Amber Stubbs, managing editor of

For a closer look at how these virtual numbers work, check out examples at Bank of America (BAC) , Citibank(C) and Discover Financial Services(DFS).

Peace of Mind -- for Free

Veteran consumer advocate Edgar Dworsky of Consumer World is a longtime fan of virtual credit-card numbers. "I use them in two situations, when dealing with an unfamiliar website and when I want to ensure that future charges -- such as a fee for another year of a particular service -- cannot be automatically charged to my card," Dworksy says. He always opts for the virtual card to expire in two months, which is the shortest period that Bank of America allows, and sets a limit no higher than the amount of the particular purchase.

"The best thing about virtual credit card numbers is that you can set the maximum credit limit, when it expires and what website it can be used on. They are useless to thieves. Well, that's the idea. But if they do get the number somehow, their actions are extremely limited -- almost impossible. In order for them to even attempt a transaction, they'd have to know where the credit-card number can be used. The purchase would also be declined if the transaction surpassed the set limit on the virtual number, and, of course, they could have long expired by the time they attempt to make a fraudulent purchase," says Howard Dvorkin, founder of Consolidated Credit.

Bob Williams, a senior vice president at a bank in Little Rock, shops online several times a week. He loves virtual credit-card numbers. "They allow me to shop online with totalsafety and protection of my primary credit-card number," he says. "I simply will not do business online with any other card because they don't offer this simple and safe methodology to transact business over the Internet."

For those who may not have sterling credit, no worries. "People with bad credit should know that these cards work much like any prepaid card. Good credit is not a necessity and there are no credit checks and no income verification to be had here," Germanovsky says.

Protection, but No Panacea

While virtual credit-card numbers are a great tactic to keep criminals from seeing your real account information, they aren't a panacea, Dvorkin says.

For one thing, they aren't 100% foolproof. Some customers have reported virtual-credit-card transactions that have gone through even when they've exceeded the limits the consumers have set, or when they take place well after the expiration date.

And, often, customers can only dispute statements for a limited time before they're responsible for the cost. "For people who don't pay too close attention to their credit-card statements, this could be a problem," Dvorkin says.

The bottom line is that you still need to carefully monitor your credit-card statements when you're using virtual numbers. "Virtual credit-card numbers offer an extra layer of protection, but they are not a cure-all," Stubbs says.

Nonvirtual Stumbling Blocks

The numbers can also raise stumbling blocks for customers, so it's important to think about how you use the phantom numbers. Rental-car companies, for example, want to see the card you used to reserve the car when you arrive to claim it. If you used a virtual number, it wouldn't match the number on your card, points out Linda Sherry, a spokeswoman for Consumer Action.

For additional protection, use the feature that lets you limit the amount charged. You might also want set your preferences so that all the virtual numbers are only good for one transaction unless you authorize a later expiration date, Williams advises.

Read the fine print and be aware of how long the number will be valid, particularly if you will be using the number for a recurring payment, Harzog says. Typically, the validity periods are short-lived, so if you use a virtual credit-card number to preorder products, the number could expire before the card is billed, Stubbs points out.

Know too, that these numbers can usually only be used online.

Virtual credit-card numbers have proven tricky for some business owners. " I've had some bad experiences, as a vendor, with virtual credit card numbers," says George Burke, founder and CEO of, a Netflix-style book-rental service with monthly credit-card billing. "There have been instances where members have signed up with these virtual credit cards during a free trial and simply canceled that virtual number, resulting in us being unable to bill for the next month of service and them holding onto a hundred bucks worth of our inventory. We have had a pretty significant loss that was at first unexpected, but then had to be worked into our regular costs of doing business. Crazy right?"

Do You Need Double Protection?

Susan Grant, director of consumer protection for the Consumer Federation of America, isn't sure there's a compelling reason to get a virtual credit-card number. "There are strong credit card protections in place," she says. "You're only responsible for $50 if your card is stolen."

Then too, most major card issuers offer "zero liability" for online purchases. As Sherry says, "Most of the benefits are for the bank, which would be responsible for the charge if it was unauthorized or fraud."

But if you're a person who thinks safety means having both suspenders and a belt, then, yes, maybe virtual credit-card numbers are ideal for you.

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