Virtual debit card

As more and more people in Australia and worldwide use the internet for information, entertainment, communication and commerce, virtual debit cards have been developed offering more secure, private and accessible ways for people to make online payments.

Features of virtual debit cards

The term “virtual” is used to describe these debit cards because there is no actual physical paper or plastic card: instead of a debit card the user has a debit card number that is generated for each transaction.  Virtual debit cards are promoted as being more accessible, private and secure than many other electronic money transfer methods.  This is because:

• Virtual debit cards can be used by someone who doesn’t have a credit card.  In the USA there is a huge population of 50-100 million people labelled “the under-banked” because they are unable to open traditional bank accounts.  Prepaid debit cards and virtual debit cards have been marketed as a service to help the under-banked population by providing an alternative to traditional banking transactions.
• Virtual debit cards are designed to prevent fraud.  Because there is no card a virtual debit card can’t be lost or stolen.  Traditional debit cards and prepaid debit cards are engraved with a number that lasts for the life of the card, but a virtual debit card is simply a one-time number generated for a single transaction. 
• Virtual debit cards protect the user’s privacy.  Many internet users are wary about giving their personal or bank details online, either because they want to avoid identity theft or because they want their online transactions to be private.  Unlike a credit card or debit card, a virtual debit card is not necessarily linked to a personal bank account, so transactions using a virtual debit card are not recorded in a bank account.

PayPal virtual debit card

MasterCard and Visa, the major international financial institutions that process credit card and debit card transactions, have developed the virtual debit card products that are available today.  MasterCard has worked with the online auction company eBay to develop the PayPal virtual debit card product to handle the financial transactions of eBay buyers and sellers.

• The PayPal virtual debit card works using a unique 16-digit MasterCard number generated for each transaction.  The user must first have a PayPal account; the PayPal account must either have sufficient funds from eBay sales to cover the transaction, or be linked to a debit card which could be an anonymous prepaid debit card.   The MasterCard number is entered on the online shop’s payment screen to complete the payment.  The facility can be used to pay for eBay purchases and also to pay for goods on any online store that accepts MasterCard payments.
• A basic Paypal account is fee-free.  While there are no account fees, PayPal doesn’t pay interest on the funds in a basic PayPal account.  Many Paypal account-holders use their Paypal account to hold the proceeds of eBay auctions then spend the accumulated funds with virtual debit card transactions, bypassing the traditional banking system and avoiding its account fees but missing out on the benefit of earning interest. 
• There has been some criticism of PayPal.  Some of the criticisms are related to particular administrative and customer service issues.   Other complaints are about more fundamental matters connected with the company’s general business practices, including concerns that although the company operates like a bank using PayPal account holders’ funds to generate revenue it is not considered to be a bank, is not subject to US government regulation like banks, and therefore does not offer proper security for account holders’ funds.

Virtual debit cards are an interesting initiative developed by major financial institutions as alternatives to traditional bank accounts and transactions.  To find out more about virtual debit cards please view our comparison tables here.