Tuesday, October 18, 2011

Shopping with Virtual Credit Cards (VCCs)

by Scott Chapman


I’ve been using virtual credit cards (VCCs) for online shopping, phone shopping, and bill paying for almost a decade now. So it amazes me that most of my friends have never heard of VCCs or the virtues of VCCs.

What’s a VCC? VCCs are virtual credit cards generated on demand for you by your credit card company either via an app on your computer or via your credit card company’s website. Each VCC contains the following information:
  • VCC number – a valid, temporary credit card number different from your physical credit card number (PCC)
  • Card Verification Value (CVV) - a 3 or 4 digit number, commonly found on the back of a PCC,that’s unique to the generated VCC
  • Expiration date - the VCC’s expiration date, which typically can be controlled by you
  • Spending limit – the maximum amount that can becharged to this VCC (obviously, all charges to all VCCs in addition to thecharges to your PCC cannot exceed your PCC’s limit)
Since VCCs are “virtual,” no PCCs will be created and mailed to you by your credit card company. This is because VCCs exist only in electronic form.

Here’s an example of how VCCs work:

When I shop online, I typically generate a separate VCC for each transaction, limiting the VCC to a short, two month or less expiration date. When the VCC is charged by the website retailer, the VCC becomes locked to that retailer so that no other retailers can charge to that VCC. This implies that if the VCC is stolen from the retailer’s database, the thief will not be able to use the VCC anywhere except at the retailer where I used it and only if it’s stolen and used prior to the VCCs expiration. In addition, my credit card company allows me to individually cancel each VCC using a single mouse click, so if I’m feeling really paranoid about a retailer, I can quickly cancel the VCC within a short period of time after the retailer charges the VCC. The retailer still receives its money, but the card becomes invalid forany further charges (or credits).

In addition when I generate a VCC, my credit card company allows me to optionally set a 2 to 12 month expiration period on each VCC and to optionally set a spending limit on each VCC. With these features, I can create VCCs that last 12 months for use on monthly recurring charges, such as paying the cable company bills, the wireless company bills, and charity donations where the amounts are typically the same each month. I can also limit how much the retailer can charge to a VCC. For example, say I donate $100/month to a charity using a PCC. Instead of using a PCC, I can create a VCC that’s valid for 12 months with a spending limit of $1,200and provide this VCC to the charity. At the end of the 12 month period, I can either provide a new VCC to the charity or terminate my contributions.

So basically, VCCs allow you to limit the exposure of your PCC information. They also allow you to control the validity period of your VCC and the amounts charged to your VCC.
One wonderful side effect of VCCs deals with annual recurring subscription charges. For example, charges by magazine retailers to which you no longer want to subscribe. If you give your PCC number to a magazine retailer, every year they’ll charge your PCC number for the annual recurring subscription fee whether you meant to renew your subscription or not. If you use a VCC with a short expiration period of say two months to pay for your subscription, your subscription will only be renewed if you provide the magazine retailer with a new VCC. Now you’re in charge (pun intended) of your subscription renewal, not the subscription company.

There are a few things to be aware of with VCCs. Some companies like Amazon display products from other retailers. Each retailer charges your credit card number separately and, with each order, only one credit card number is required for the purchase. If your order contains products from multiple retailers and you use a VCC, only the first retailer to charge your VCC will succeed because the VCC locks to the first retailer who charges to it. The other retailers will be blocked from charging your VCC. To solve this problem, you’ll need to create a separate order for each retailer and use a separate VCC for each order. Virtual storefronts like Amazon typically have a “sold by” statement near the top of each product description page indicating who the retailer of the product is to aid you when creating your order.

Also, if you buy something online or over the phone that requires you to present your PCC to prove that you’re the actual purchaser (such as for a will call), you’ll need to use your PCC and not a VCC because no physical card is created for a VCC.

VCCs also go by other names such as “single-use credit card numbers,” “one-time use credit card numbers,” “substitute credit card numbers,”“disposable credit card numbers,” and “controlled payment numbers” which you may have heard of in the past. The “one-time use” and “single-use” names may be misnomers as the VCCs generated by my bank can be used multiple times with thesame retailer up until the VCC’s expiration date.

The VCC idea was developed by a company called Orbiscom which was acquired by MasterCard Worldwide in January 2009. The banks that I’m aware of that currently use the Orbiscom system to support VCCs are:
  • Bank of America– ShopSafe
  • Citibank – Virtual Account Numbers
  • Discover Card - Secure Online Account Numbers
There are differences between banks as to how their VCCs work, so your experience may vary compared to the descriptions in this article.

To wrap up, if you want to limit the exposure of your physical credit card and to limit the ability of retailers to make unwanted charges to your credit card, virtual credit cards are a great way to go.

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