What is a virtual card? How do they work?

Key takeaways:

• A virtual card is a digital payment tool that functions like a credit or debit card but exists entirely online, designed for secure electronic transactions.

• Virtual cards generate unique card numbers, offer customisable spending limits, provide real-time expense tracking, and can be instantly created, frozen, or cancelled.

• Airwallex provides multi-currency virtual corporate cards with zero foreign transaction fees, instant card creation, built-in spending controls, and seamless integration with accounting software.

The way Australians pay for goods and services has shifted dramatically in recent years. In the last quarter of 2024 alone, more than 1.5 billion payments were made via mobile wallets, totalling over $60 billion. Mobile wallets now account for 38% of card payments by number and 22% by value, demonstrating their growing dominance in everyday transactions.¹

At the same time, cash usage continues to decline. The amount of cash withdrawals each month has dropped from around $120 billion in the last half of 2018 to around $80 billion in the last half of 2024, reflecting a clear move towards digital payment methods.²

For businesses, this digital transformation extends beyond consumer payments. Virtual cards have emerged as a powerful tool for managing company expenses, offering enhanced security, real-time tracking, and seamless integration with accounting systems. As more businesses embrace digital-first financial operations, understanding how virtual cards work and their benefits has become essential for staying competitive.

What is a virtual card?

A virtual card is a digital payment method that works just like a physical credit or debit card, but without the plastic. It exists entirely online and is used primarily for electronic transactions such as online purchases, subscription payments, and vendor payments.

Virtual cards are issued through banks or financial service providers such as Airwallex. When you create a virtual card, you receive a unique set of card details, including a card number, expiry date, and security code – the same information you'd find on a physical card. However, these details exist only in digital form, accessible through your provider's online platform or mobile app.

The key difference between virtual and physical cards lies in their security and flexibility. You can create multiple virtual cards for different purposes, set specific spending limits for each card, restrict transactions to certain merchant categories, and instantly freeze or cancel cards when needed. This makes virtual cards particularly valuable for businesses managing multiple expenses, vendors, or team members.

How do virtual cards work?

Each virtual card has its unique card number that links back to your main bank account or funding source. You can create multiple virtual cards and use them to transact in various currencies using funds available in your account. Some providers offer additional features such as the option to set transaction limits and to create disposable cards that automatically expire after the intended payment has been made.

Now, let's take a closer look at how virtual cards work:

1. Card creation: Users can create a virtual card through their bank or financial provider's website. They will receive their virtual card details including a set of unique card numbers, expiry date, and security code. During this process, they may have the option to set specific spending limits or card expiration dates for added control.

2. Transaction: When making a purchase, the virtual card details are entered just like those of a traditional card. The transaction is encrypted and processed through secure payment gateways, ensuring the safety of your business' financial information.

3. Authorisation: Your bank or financial provider then verifies the transaction, ensuring adequate funds are available and that the transaction parameters fit within any set limits. Approval is signalled back to the merchant without revealing any sensitive account information.

4. Completion: The purchase amount is deducted from your account, and the vendor receives payment. The transaction appears on your statement, linked to the virtual card number, allowing for easy tracking and management.

This process happens in seconds, providing businesses with immediate purchasing power while maintaining robust security measures throughout the transaction.

Why use a virtual card in Australia?

Virtual cards provide a convenient and safe way to make online transactions. Here are a few reasons why businesses should consider using them:

Ease of use

Virtual cards are easy to set up and use, with the ability to create multiple cards for different purposes.

• Instant card creation: Businesses can easily issue virtual cards to new employees, contractors, or one-off purchases through their bank or financial provider's online platform. Virtual cards can be created in real-time, providing businesses with immediate purchasing power whenever needed. This eliminates the tedious application process and the hassle of waiting for physical cards to be delivered.

• Multi-currency cards: Virtual cards can be used for transactions in multiple currencies, usually without incurring any foreign transaction fee. This provides businesses with a versatile payment option for their global purchasing needs, including paying for digital ad spending and SaaS subscriptions in currencies other than AUD or USD.

Enhanced security

Virtual cards offer the following security features to reduce fraud risk during transactions:

• Freeze or cancel virtual cards: In the event of a fraudulent attempt or if a card is no longer needed, businesses can swiftly deactivate the unwanted virtual card without affecting their primary account or other virtual cards, ensuring ongoing transactions remain unaffected.

• Virtual cards cannot be lost or stolen: As virtual cards exist only in the digital space, they cannot be physically lost or stolen like traditional corporate cards. This eliminates the need for replacements, which may lead to delays and potential losses until the physical card is replaced.

• Transaction limits: Virtual cards can have a predefined spending limit, offering an extra layer of security to avoid overspending or unauthorised transactions. Additionally, businesses can limit transactions using the virtual card to only certain types of merchants.

• Real-time spend tracking: With virtual cards, businesses can track their expenses in real-time through online platforms or mobile apps. This allows for immediate identification of any suspicious transactions and timely action to be taken.

• Multi-layer approval workflows: You can set up multi-layer approval workflows for expense management software to ensure all virtual card transactions are thoroughly authorised. This minimises the risk of unwanted or fraudulent spending.

Improved expense management

Virtual cards facilitate greater control over managing company spending, resulting in time and cost savings for businesses. Additionally, the centralised data and real-time tracking allow for better visibility over company expenses.

• Simplified reconciliation: Virtual cards are linked to a central account, allowing for all transactions to be recorded in one place through real-time tracking. This eliminates the need for manual record-keeping and reconciling of multiple credit card statements. Generating expense reports also becomes a seamless process with a click of a few buttons.

• Automated categorisation: Virtual cards can be set up to automatically categorise various company expenses such as business travel, ad spending, and events. This also helps with more efficient budgeting and identifying areas where spending can be reduced.

• Accounting software integration:  Many virtual card providers offer integration with popular accounting software like Xero, making it even easier for businesses to streamline their financials.

• Budget control: Businesses can set spending limits for each virtual card, ensuring that spending aligns with the company budget. This can be particularly useful for companies with multiple departments or teams that have varying budgets.

• Save time on expense reimbursement: By assigning virtual cards to employees, companies remove the need for employees to pay out of pocket and submit expense reports for reimbursement later on.

Lower fees

Many virtual cards do not charge annual or transaction fees, making them a more cost-effective option for businesses. Using Airwallex, businesses can create virtual cards and spend in multiple currencies with no domestic or international transaction fees and no hidden charges.

Recurring vendor payments

Virtual cards are particularly effective for managing recurring vendor payments.

• Dedicated cards for each supplier: With Airwallex, you can assign a dedicated virtual card to each recurring supplier, making it easy to track and manage ongoing expenses across multiple vendor relationships.

• Automatic payment controls: Set automatic payment controls for each vendor relationship, ensuring payments are processed on time without manual intervention. This eliminates the risk of missed payments and late fees.

• Centralised monitoring: Monitor all recurring transactions from a single dashboard, giving you better visibility for security purposes, convenience, and detailed spending analysis. This approach helps you maintain tighter control over subscription services, software licenses, and other regular payments while simplifying reconciliation and budgeting processes.

Why Airwallex is a top choice for virtual business cards

Airwallex’s multi-currency virtual cards offer a number of features for growing businesses. The cards come with built-in controls, including spend limit options and seamless expense tracking, all of which you can manage from your online dashboard. There are 0% foreign card transaction fees, auto-conversion at leading FX rates, and hassle-free management of your team’s expenses.

How do virtual cards differ from mobile wallets and payment apps?

Virtual cards, mobile wallets, and payment apps work together to facilitate seamless digital transactions without the need for physical payment instruments. Virtual cards act as digital versions of physical credit or debit cards. On the other hand, mobile wallets and payment apps store digital forms of various payment options, including virtual cards.

Here are the key distinctions between the three:

• Nature of the tool: For those who need a refresher on what a virtual card is, it is a digital-only payment tool that can be used for various transactions. It is similar to traditional debit or credit cards but without the physical plastic. In contrast, mobile wallets and payment apps are applications that store digital versions of credit or debit cards, just like your physical wallet. They allow users to make payments in-store by scanning a QR code or tapping their phone on a payment terminal. Examples include Apple Pay, Google Pay, AliPay, WeChat Pay, and PayLah.

• Usage scope: When you store your virtual cards in mobile wallets or link them with payment apps, you can use them for both online and in-store purchases. Mobile wallets and payment apps use tap-to-pay technology and QR codes to facilitate a broad range of transactions. Some also offer additional features such as peer-to-peer payments, bill splitting, and loyalty program integration.

• Security features: Virtual cards offer a unique security feature by allowing users to generate a new card number for each transaction or merchant, enhancing fraud protection. Mobile wallets and payment apps secure transactions through encryption, tokenisation, and biometric authentication, making it difficult for unauthorised users to access the virtual cards stored in them.

• Purpose and customisation: Virtual cards can be tailored for specific uses, such as restricting the merchant categories where they can be used or setting spending limits, catering mainly to businesses seeking to control expenses. Mobile wallets and payment apps offer convenience to the general consumer, allowing for a simplified and consolidated way to use multiple payment methods for various transactions from in-store purchases to eCommerce payments solutions.

These distinctions highlight the complementary roles that virtual cards, mobile wallets, and payment apps play in payments. Virtual cards cater to businesses with a need for secure and controlled digital payments services, while mobile wallets and payment apps help take the benefits offered by virtual cards into offline transactions.

An example would be managing travel and entertainment expenses. Employees on business trips can easily use their virtual corporate cards stored on their mobile wallets such as Apple Pay or Google Pay for in-person transactions, eliminating the need to carry physical cards. As virtual cards offer real-time expense tracking and the option of setting spending limits, businesses can also gain better control and visibility over their employees' expenses. Therefore, the integration of virtual cards into mobile wallets and payment apps offers both convenience and a streamlined expense management solution for businesses.

Should you use a virtual card for your business?

If you're looking to mitigate fraud risks, streamline expenditure tracking, or enhance control over business spending, virtual cards offer a compelling solution for businesses of all sizes. Here are five reasons why you should consider using virtual cards for your business:

• International transactions: If your business often incurs expenses in foreign currencies through international payments or travel, virtual cards present a cost-saving opportunity. Many virtual cards offer the advantage of 0% transaction fees on both domestic and international purchases, providing a convenient and efficient way to manage global spending.

• Scalability and flexibility: As your team expands and the volume of expenses grows, the challenge of managing manual reimbursements becomes more daunting. Virtual cards present a scalable and flexible solution as they can be swiftly issued and managed for new hires, different departments, or specific projects, without the complexity of traditional administrative procedures or the need for extra infrastructure.

• Enhanced security: Disposable virtual cards reduce the risk of fraud and data breaches by giving you the ability to instantly freeze or cancel them when needed. You can immediately create a new card online without being interrupted by a tedious card replacement process. 

• Streamlined expense management: Virtual cards offer real-time visibility and control over business expenditures, allowing businesses to track expenses accurately and efficiently. With the option of customisable spending limits at the transaction level, businesses can ensure responsible spending practices within their organisation.

• Enhanced financial efficiency: If your business incurs regular monthly expenses such as software subscriptions, you can set up recurring payments using your virtual cards to ensure timely payments and avoid any late fees. You can also dedicate virtual cards to specific vendors, projects, or departmental functions, such as dedicating a card solely for marketing and advertising payments, to facilitate integrated budgeting and spending.

Why use the Airwallex Corporate Card

The Airwallex virtual Visa card helps businesses transact in multiple currencies without incurring any transaction fees. You can create virtual company cards, assigning different spending limits and dedicated use cases for each. This provides greater control over financial outflows by enabling real-time monitoring of employee expenses and fostering transparency in budget management across teams. Plus, Airwallex prioritises robust safety measures, including the instant ability to create, freeze, or cancel virtual cards, protecting businesses against the threat of card-related fraud.

Virtual card: Frequently asked questions

Are virtual cards safe?

Yes, virtual cards are considered highly safe and secure. A unique card number can be generated for each transaction, making virtual cards significantly more secure against fraud and misuse than traditional physical cards. Additionally, most virtual cards come with customisable spending limits, expiration dates, and can be locked or deleted instantly via mobile apps or online platforms. This level of control and security ensures that even if a virtual card’s details are compromised, the risk of financial loss is minimised, offering businesses and individuals a robust layer of protection for their financial transactions.

Why do businesses use virtual cards?

Businesses increasingly adopt virtual cards due to their enhanced security features, cost-effectiveness, and convenience. Virtual cards help streamline ‌accounting processes, as they can be directly integrated with expense management systems like Xero, facilitating real-time monitoring and reporting. This integration not only improves operational efficiency but also offers greater visibility into spending patterns. The ability to set specific spending limits and expiration dates on virtual cards also enables businesses to maintain tighter control over expenses, further enhancing their budgeting.

Can I withdraw cash from virtual cards?

Typically, virtual cards are designed primarily for electronic transactions and are not directly usable for withdrawing cash at ATMs or bank branches. However, certain financial institutions or card issuers may offer specific features that allow funds from a virtual card to be transferred to a linked account that a physical card can access, which could then potentially be used to withdraw cash.

What is the best virtual card solution for businesses in Australia?

The best virtual card for your business will depend on a variety of factors and come down to what your business needs and goals are. One of the best virtual cards in the market is Airwallex, with multicurrency support, instant issuance, and innovative digital features that keep you in total control of your team's expenses.

How do I freeze or cancel a virtual card?

You can freeze or cancel a virtual card immediately through your provider's online dashboard or mobile app. Freezing a card prevents any further transactions from being made on it, including virtual use, physical use, and digital wallets like Google Pay or Apple Pay. The freeze is reversible, so you can easily unfreeze the card when needed. Cancelling a card, on the other hand, permanently closes it and cannot be undone.

With Airwallex, you simply navigate to your card details page, select "Manage card" and choose either the freeze or cancel option. The card stops working instantly, with no waiting period. If you need a replacement, you can generate a new virtual card right away.

Which platforms help startups automate virtual card creation for different vendors?

Many digital payment platforms allow startups to automatically create virtual cards for each vendor they work with. Providers like Airwallex and similar fintech companies offer features that let you issue cards instantly, set individual spending limits per vendor, and integrate with your existing finance and procurement software. This automation helps you manage spending in real time and makes reconciliation much easier.

Which fintech platforms are commonly used for virtual cards and digital banking?

Businesses often use platforms like Airwallex, Revolut, and Wise for virtual cards and digital banking services. While there's no single best option for every company, these providers are popular with fast-growing businesses because they offer quick virtual card creation, flexible spending controls, support for multiple currencies, and the ability to scale with your business through various integrations.

Sources

1. https://www.ausbanking.org.au/insight/mobile-wallet-usage/

2. https://www.ausbanking.org.au/insight/australians-are-withdrawing-less-cash/

This information doesn’t take into account your objectives, financial situation, or needs. If you are a customer of Airwallex Pty Ltd (AFSL No. 487221) read the Product Disclosure Statement (PDS) for the Direct Services available here.