What are the security advantages of virtual over physical cards?

What is a digital card?

However, the statistics say otherwise. According to J.P. Morgan’s 2023 report, virtual cards are subject to fraud only by 9% compared to other most common payment methods (e.g., credit cards, checks, etc).

What makes these cards more secure compared to other payment methods? Can a digital wallet be hacked? Are virtual cards actually better than physical cards? Let’s find out

So, what is a virtual card? A virtual card is a non-physical payment card that is used for business transactions. Its core functions are basically the same as those of traditional credit or debit cards. However, the main difference is how they are stored—they exist in digital form and are typically managed through expense platforms, ERP integrations, or fintech dashboards.

Like any other corporate card, virtual cards have a list of core features that make them a popular option for many businesses. Here are some:

• Unique card details. Each digital card has its own 16-digit card number, expiration date, and security code (CVV), just like any other physical card.
• Tokenization. Sensitive card information is replaced with a unique card number (token) during transactions. It helps to secure actual card info when being used.
• Instant issuance and management. Digital cards can be generated instantly and managed through mobile apps or online platforms. It helps to set spending limits, freeze/unfreeze cards, and monitor transactions in a matter of seconds.
• Security. Features like biometric authentication (fingerprint or facial recognition) and two-factor authentication add layers of security to digital card usage.

Where can digital cards be used?

Virtual cards, just like regular ones, can be used in a range of ways. For example:

• Employee expense management. Digital cards for employees make tracking spending easier with set limits and real-time monitoring.
• Vendor and supplier payments. Virtual cards offer safer ways to pay vendors. They can also work as one-time or regular payment options.
• Subscription and SaaS management. Separate digital cards for each software service help track costs and stop unwanted charges.
• Travel and entertainment expenses. Business travelers can use digital cards for all expenses, with quick shutdown if the cards are lost.
• Marketing and advertising expenditures. When you use different digital cards for each marketing effort helps control spending and measure results.

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How are digital cards more secure?

Digital (virtual) cards are a common option if you want to have a secure payment method. You may know some features that make virtual cards the best option in terms of security. Here we will discuss them in more detail.

Tokenization and encryption

Digital cards use tokenization, which replaces sensitive card details with unique, non-sensitive tokens during transactions. This way, your actual card information isn’t exposed. It is perfect if you don’t want to risk your card being affected by a data breach.

Dynamic CVV and one-time use numbers

Virtual cards use dynamic CVV technology, which generates a new security code for each transaction. Some platforms also offer a one-time-use virtual card number.

Real-time controls and instant blocking

With digital cards, you can control your card usage in real-time. You can set spending limits, monitor transactions instantly, and freeze or cancel cards immediately if you notice suspicious activity.

No physical theft risk

Since digital cards exist electronically, there is no possibility of your card being physically stolen. Such a digital nature of these cards reduces exposure to certain types of fraud.

Secure authentication (Biometrics/2FA)

Digital card transactions often use biometric authentication (e.g., fingerprint or facial recognition) and two-factor authentication (2FA).

Risk comparison: Digital vs physical cards

Now that you know what makes digital cards secure, it is good to see them in comparison to the physical ones. This way, you will see the difference between them more clearly.

What are the risks of digital cards for businesses?

Even though digital cards are considered more secure than physical ones, you, as a business owner, should know that these cards still have some risks related to them. Mostly, it is connected to security, credit card issuer limitations, or an increase in fraudulent chargebacks. Here we will discuss these and some more issues in more detail.

Cybersecurity vulnerabilities

Since digital cards are internet-based, they are most likely to be affected by cyber threats such as phishing, malware, and data breaches. To make sure your company is protected from it, conduct regular security training and adhere to best practices in terms of data protection.

Regulatory compliance challenges

Working in different places means dealing with different rules about digital payments. If you don’t follow data protection laws like GDPR or payment security standards like PCI DSS, you could face fines or damage to your reputation. You should stay up-to-date and make sure your payment providers follow all the rules that apply to your business.

Provider limitations and dependencies

Watch out. Some digital card providers will force you to open new accounts or switch banks entirely. This can mess up your existing banking relationships and cost you rewards points. Before signing with anyone, make sure they work with your current banking setup to avoid disrupting your daily operations.

Chargeback fraud and financial losses

Digital payments are booming, but so is “friendly fraud”. It is when customers falsely dispute legitimate purchases. This first-party fraud is expected to cost businesses $15 billion globally in 2025. Small and medium businesses get hit hardest since they often don’t have the resources to fight these bogus claims.

Operational and technical risks

When you rely on digital payment systems, you are also gambling on their reliability. System outages, software conflicts, and technical hiccups can freeze your payment processing and cause delays and financial mix-ups. Always check if you have solid tech support and backup plans in case you should be ready, so your business keeps running when (not if) technology fails you.

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Real-world use cases

Now that we talked about what digital cards are and what you can expect from them in terms of security, it is good to see how companies that have already tried it are doing. Here we will cover several examples of companies that implemented digital cards in their procurement processes and what the results were.

Microsoft

Microsoft had a problem we all understand: how to manage employee travel expenses without going insane. Their solution? Partnering with American Express Global Business Travel to implement virtual cards.

Here’s what happened when they made the switch:

• Automation that works. Microsoft now creates virtual payment cards automatically when employees book travel.
• Better fraud protection. Virtual cards are single-use with spending limits, which helps to cut down on potential fraud.
• Real-time visibility. Finance teams can now see travel spending as it happens, not weeks later.
• Simpler reconciliation. The system automatically matches expenses to the right departments and projects.
• Happier finance team. With less paperwork and fewer errors, Microsoft’s accounting staff could focus on more important work.

Destinations of the World (DOTW)

When Destinations of the World (DOTW) needed to upgrade how they paid their travel suppliers, they turned to Citi for a smarter solution.

Here’s how DOTW transformed their payment process:

• No outdated payments. DOTW implemented Citi’s Virtual Card Accounts (VCA), which helped to work with outdated payment methods.
• No difficult integration. They integrated these virtual credit cards right into their existing systems without a complete overhaul.
• Hands-off payments. The system now automatically pays suppliers on time, every time.
• Money is flowing right. Better cash management meant DOTW could optimize when payments went out.
• Detailed tracking. Management gained access to comprehensive reports showing exactly where the money was going.
• Less paperwork. Staff spent way less time processing payments and more time on growing the business.

Sutherland

When Sutherland (the global business process outsourcing company) wanted to fix their employee expense headaches that’s why they selected Sabre Virtual Payments solutions.

Here’s how they started to work with expense management with virtual credit cards:

• Tested the waters first. First, they rolled out virtual payments to just 100 employees as a pilot program:
  • Spending is under control. Managers gained the ability to set limits and approve expenses before money was spent.
  • No more unauthorized purchases. Virtual cards reduced the amount of unauthorized purchases thanks to up-to-date expense tracking.
  • Paperwork simplified. The digital system streamlined reporting and approvals into a smoother process.
• Proof in the pudding. The pilot was so successful that Sutherland decided to expand it company-wide.
• Going global. They’re now implementing virtual payments across their worldwide operations.

Best practices for secure digital card use

If you have already researched ways to protect your digital card, you know that there are many ways to do that. But which ones are the best to implement? Which will make your cards the most secure? Here we have analyzed and compiled a list of those practices that are must-haves for you.

Implement tokenization for payment data

First is tokenization. This approach creates unique tokens that replace actual card info with no exploitable value. Compared to well-known encryption, these tokens are non-reversible, which means the data cannot be decoded. This technology is especially important now that mobile commerce is growing, particularly, 10% of all retail sales in the US are expected to be generated via mobile devices.

Tokenization also helps to comply with PCI DSS regulations. It reduces the amount of cardholder data stored within your environment, which in turn reduces the need to protect the storage of sensitive, readable Primary Account Numbers (PANs).

Use modern encryption protocols

Even though we told you that encryption may not be at the same level as tokenization in the previous approach, it doesn’t mean you have to completely abandon it. For example, you can implement Transport Layer Security (TLS) 1.2 or higher for all cardholder data transmitted across networks. It is a better option since older protocols like SSL and early versions of TLS are no longer compliant.

Implement multi-factor authentication

You can also add multi-factor authentication. It is a simple yet extra layer of security. For example, before customers can complete a transaction, they must supply an additional form of digital identification to authenticate their identity.

Maintain PCI DSS compliance

PCI DSS compliance is what you have to worry about a lot. Here, you should regularly update encryption protocols. Additionally, make sure you comply with PCI DSS (Payment Card Industry Data Security Standard) and GDPR (General Data Protection Regulation) to protect consumer data and avoid legal repercussions.

Regular security audits and staff training

It is obvious that all the approaches above won’t go well if the staff is not trained for such changes. Build a security culture so strong that no malicious person can affect it. Your business’s reputation depends on it.

Make sure your employees have access to up-to-date training materials, and you have a security team that can do regular audits to find if the system is still strong enough to handle possible breaches.

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Takeaway

To sum up, virtual cards offer a lot of advantages over traditional ones, especially when it comes to security concerns. Digital cards are helping businesses protect their finances for the following reasons:

1. Enhanced security features. Virtual cards use tokenization, dynamic CVVs, and real-time controls to protect sensitive data and reduce fraud risk by up to 91% compared to traditional payment methods.
2. No physical theft risk. Since virtual cards exist only digitally, they reduce the risk of physical loss or theft that plagues traditional cards.
3. Instant management capabilities. Generate, control, and monitor virtual cards in real-time through mobile apps or online platforms.
4. Advanced authentication. Biometric verification and two-factor authentication are additional security layers that physical cards typically lack.
5. Perfect for specific business needs. Virtual cards are best for employee expenses, vendor payments, subscription management, and tracking marketing expenditures with customized controls.

When you implement virtual cards with good security protocols like tokenization, modern encryption, multi-factor authentication, and regular security audits, you create a safer space for your employees than any physical card could ever do.