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Virtual Credit Cards

Thursday, August 09, 2007

There are a lot of people who would hate to give out their credit card numbers to shop online. With the number of identity theft cases nowadays, this is something to be expected. The banks and card issuers have been aware of the problem and are always coming up with tools to prevent it. However, for a credit card transaction to be secure, safety actions need to be taken from both sides - the credit card processing company and the merchant.

This is where a major problem occurs. While credit card issuers are able to employ costly methods to ensure protection, many merchants are forced to use simple ways of securing transactions in order to stay as convenient as possible.

The market for security products for credit cards is constantly expanding, with new programs being developed constantly. One such product has been available for seven years, but didn't really catch on despite being a free and effective method of securing credit card transactions.

The service is readily available by top credit card issuers (Citibank, Discover) and is often referred to as virtual credit cards or substitute credit cards. The scheme that lies underneath the program is fairly simple.

Once you sign up for the service, you will be given the card issuer's software that you can download. As soon as you enter your credit card details, the program will generate a temporary 16-digit virtual credit card number that you can use to make purchases online and over the phone.

Although the principle is the same for each issuer, virtual cards may have different characteristics. For example, the new randomly generated credit card number may only be valid for one transaction or a certain period of time. One other variation in such cards is that the substitute number may only be used with one particular merchant or a set of merchants.

When using the above scheme, the real credit card number will only be visible to you and the bank. The merchant stays out of the transaction process. Therefore, a hacker can only steal temporary credit card number which is of no use to anyone once the transaction has been processed.

However, there are also contrary arguments. Many people find such credit card deals useless, since they are only liable for $50 if a card is used by thieves. Moreover, virtual credit cards have limited area of usability, which eliminates the term "convenience". For example, certain services require you to confirm a purchase with real plastic.

Substitute cards also make it hard to pay monthly payments such as phone and electricity bills since the card number would expire every week or so. In this case, Discoverer offers a virtual card that can only be used with one merchant and has an expiry date that matches your real card. Pre-ordering items is another area where virtual credit cards are useless.

Nevertheless, think of all the consequences of a credit card fraud. Even if you feel enough protection by the $50 liability law and generating virtual credit card numbers is too much of a hassle for you, you may still end up in an unpleasant situation. Once a thief gets a hold of your credit card number, $50 is not everything you may lose. Identity theft is something that should worry you most. Think twice before giving out you real credit card number, and if there is a free and effective method to minimize the risks of a fraud, why not use it?

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