Prepaid virtual cards are digital payment cards that function like traditional prepaid cards but exist entirely online. They have unique card numbers, expiration dates, and card verification value (CVV) codes and come preloaded with a specific amount of money. Virtual cards provide another layer of security and control over spending. Cardholders primarily use them for online and mobile transactions.

Digital prepaid card transactions are increasing, with global transactions valued at $528.7 billion in 2023 and expected to reach $3.98 trillion by 2028. Below, we’ll explain how prepaid virtual card programs work, why a business would launch a prepaid virtual card program, and how to create one.

What’s in this article?

• What are prepaid virtual card programs?
  
• How do prepaid virtual card programs work?
  
• Why would a business launch a prepaid virtual card program?
  
• Challenges of launching a prepaid virtual card program
  
• How to launch a prepaid virtual card program
  

What are prepaid virtual card programs?

Prepaid virtual card programs are platforms or services that allow users to create and manage prepaid virtual cards. Financial institutions and fintech companies create them, providing the infrastructure and tools to generate card details, add funds to a card, and track transactions. Some programs also offer features such as the ability to set spending limits and deactivate cards.

How do prepaid virtual card programs work?

Prepaid virtual card programs use tech-powered financial services to facilitate the creation, management, and use of digital payment cards. Here's a typical program workflow:

• Card issuance: The program provider uses a platform to generate card numbers, expiration dates, and CVV codes for a specific user account or purpose. The provider often stores these details securely within the program's system. Users can access or manage them through an online dashboard or mobile app.

• Funding: Users add funds to their virtual card accounts using methods such as bank transfers, debit card payments, and credit card payments.

• Card management: Users can often create multiple virtual cards within the program. They can view, edit, or deactivate card details anytime. They can also view transaction history and balance information through the program interface.

• Usage: Users enter the virtual card’s details (e.g., number, expiration date, CVV) during online or mobile transactions to process the payment. The business’s payment processor verifies the details and available balance with the card provider. If approved, the provider completes the transaction by deducting funds from the virtual card’s balance.

• Security and fraud prevention: Many programs incorporate security measures such as one-time-use card numbers, dynamic CVV codes, transaction alerts, and the ability to instantly freeze or cancel a card if it’s compromised.

• Other common features: Depending on the provider, programs might have extra functionalities such as the ability to set recurring payment schedules, create virtual cards for specific businesses or spending categories, or share virtual card access with others.

Why would a business launch a prepaid virtual card program?

Businesses might launch a prepaid virtual card program for internal use, or to attract and retain customers. Here’s how these cards benefit businesses on both fronts.

Internal use

Internally, companies might use prepaid virtual cards for business expenses such as online transactions, vendor payments, and employee expenditures. This digital setup provides another security layer; companies can instantly generate and deactivate the cards, reducing the risk of fraud and misuse. These cards also make procurement processes and budget management easier, as they allow managers to set specific card limits and allocate funds as needed.

Customer use

Externally, companies might launch virtual card programs to incentivize purchases with rewards programs and build brand loyalty over time. For example, a retailer that launched its own prepaid virtual card could encourage repeat spending by offering to add $5 to a customer’s virtual card for every $100 they spend at the store using it.

Challenges of launching a prepaid virtual card program

Here are the biggest challenges and risks of launching a prepaid virtual card program.

• Integration: Integrating a virtual card system requires sophisticated IT architecture that can process transactions and connect to existing systems such as enterprise resource planning (ERP) or accounting software.

• Compliance: Businesses must have a proactive, informed compliance strategy to navigate legal and regulatory requirements, including financial regulations and Europe’s General Data Protection Regulation (GDPR) and revised Payment Services Directive (PSD2).

• Customer adoption: Businesses must overcome skepticism to shift customer preferences from traditional payment methods to virtual cards. They must proactively educate potential users on the security and convenience of virtual cards, and improve usability to provide a genuinely compelling alternative to physical cards.

• Security: Virtual card programs must protect against ever-changing cyber threats through up-front investment and constant adaptation. This involves incorporating advanced security protocols, including end-to-end encryption, tokenization, and real-time fraud detection algorithms.

• Operational management: Businesses must meticulously plan their issuance, usage monitoring, and customer support tactics to maintain service quality and responsiveness. They will need strong operational frameworks and ongoing training for teams.

• Costs: There are substantial up-front and ongoing expenses associated with running virtual card programs, from development and compliance costs to investments in security and customer acquisition. Businesses must manage their finances carefully to ensure a positive return on investment.

• Market differentiation: Distinguishing a virtual card from competitors requires strategic branding and unique feature sets. Strategic partnerships might also be necessary to enhance the card’s value proposition and set it apart in a crowded market.

• Interoperability: Businesses must ensure that their virtual cards are compatible across different payment networks, digital wallets, and online payment gateways. Their systems must be able to handle currency conversions and settlement processes across borders.

How to launch a prepaid virtual card program

Your business might decide to launch a prepaid virtual card program for internal use or for customers. Here’s a step-by-step guide to planning and launching your program:

• Business goals: Ensure that your virtual card program aligns with your company’s larger ambitions. Are you looking to reach new customer bases, strengthen your brand, or transform your service offerings?

• Market position: Research who you’re designing this card for and what the market looks like. Determine how you can set your card apart from competitors. Consider existing regulations and what limits there might be on your activities.

• Technology: Your technology setup should be comprehensive and flexible enough to grow with you and adapt as new technologies emerge. Whether they’re smart security measures or new payment features, ensure that your platform can handle them.

• Compliance: Plan for compliance from the start to make your program resilient and trustworthy. Build a foundation that customers can trust.

• Security: Beyond basic encryption, adopt advanced security measures such as real-time threat detection and behavioral analytics.

• Flexibility: Create a platform that’s both customizable and secure. Provide tools that let users or developers tweak their experiences and integrate with their other services.

• Testing: Roll out your program to a small group first, using a mix of your most likely customers and some experimental picks. This pilot can reveal issues and potentially new uses or services you hadn’t considered.

• Launching: Go to market with a strategy that can adapt to real-world feedback and early results. This might involve tweaking your marketing message, adding features, or targeting different users based on customer interest.

• Feedback: After launch, implement a cycle of feedback, analysis, and updates. Use data from user interactions to refine your offerings, and ensure a steady stream of new features or improvements based on what users need and want.

• Additional offerings: Consider what other services or products can connect to your card to enrich the customer experience. Partnerships with retailers, financial institutions, or tech firms can make your card part of a larger lifestyle ecosystem.