As business payments evolve, managing expenses efficiently is crucial. Traditional payment methods often fall short in providing the control, security, and flexibility that modern businesses require. We understand how frustrating this can be for your business, which is why virtual cards come into play. 

But what is a virtual card, and how can it benefit your business?

A virtual card is a digital payment tool that allows your business to make secure online transactions. Their adoption is on the rise, with popular reports predicting a 235% growth in the global virtual card market between 2025 and 2029. 

Even in India, the virtual card market is projected to grow at a CAGR of 24% from 2025 to 2030. This growth underscores the increasing recognition of virtual cards as a game-changer for modern financial management.

In this comprehensive guide, we will discuss in detail what a virtual card is, understand how it works, explore its benefits, and shed light on some best practices for its implementation. So, let’s get started!

TL;DR

• Virtual cards are secure, digital-only payment tools that reduce the risks associated with physical cards and improve control over business expenses.

• They can be issued instantly, customised with spending limits, and assigned to specific vendors or use cases to enforce budget discipline.

• Virtual cards are ideal for managing recurring subscriptions, employee reimbursements, supplier payments, and contractor payouts.

• Their real-time tracking and detailed reporting make reconciliation and audit processes significantly more efficient.

• Despite their benefits, virtual cards may face limited acceptance with some merchants and depend on digital access and connectivity.

What is a Virtual Card?

Virtual cards are a secure, digital-only version of credit or debit cards. They are typically created for single use or vendor-specific payments. Designed for online transactions, they eliminate the risks of loss or misuse associated with physical cards and offer far more control than traditional payment methods.

Unlike physical cards, which can be lost or compromised, and digital cards, which are often just tokenised versions of them, virtual cards can be instantly issued or deactivated. They come with strict spending limits and usage restrictions, making them a flexible and accountable solution for managing business expenses.

How does a virtual card work?

Just like a physical card, each virtual card has its own:

• Card Number: A unique 16-digit number assigned to each virtual card. This number is used for online transactions and is not linked to a physical card.

• Expiration Date: This defines the validity period of the card. After this date, the card becomes inactive, preventing unauthorised use.

• CVV (Card Verification Value): It’s a 3-digit code used to verify the card during online purchases. This adds an additional layer of security by ensuring that the person making the transaction possesses the right card details.

Together, these elements make virtual card payments secure, trackable, and easy to manage across your organisation.

Where can Virtual Cards Be Used?

Virtual cards are not just limited to personal or consumer use but have found widespread adoption across various business functions. They are versatile, adaptable, and can be used for a wide range of transactions. 

Here’s where they add real value:

• Accounts Payable Transactions: Traditional AP processes are slow and admin-heavy. Virtual cards make supplier payments faster, more secure, and easier to reconcile. They integrate with your finance systems and provide real-time visibility into spending.

• Claims and Employee Reimbursements: Instead of reimbursing employees after the fact, you can issue single-use or recurring virtual cards tied to specific budgets. This speeds up approvals, reduces policy violations, and removes the need for manual expense claims.

• Inventory and Supplies: You can create vendor-specific cards with predefined limits and expiry dates for different departments. This simplifies the procurement process, purchasing, enforces budget control, and makes it easier to match payments with POs during reconciliation.

• Corporate Travel Payments: Virtual cards can handle bookings, accommodations, and other travel costs. You get central visibility, strict spend controls, and easy tracking without relying on shared cards or complex reimbursement cycles.

• Gig Worker and Contractor Payments: When paying freelancers or contract workers, virtual cards allow for instant payouts with full control over amounts and timing. This helps ensure compliance while improving the contractor experience.

Also read: How to Simplify Vendor Payments with Bulk Payment Solutions

How to Set Up and Use Virtual Cards: A Step-by-Step Guide

Understanding the step-by-step process of how virtual cards are created and used is key to fully realising their potential. If you’re considering virtual cards for your business, it’s important to understand how they work from start to finish.

Here’s the straightforward step-by-step process of creating and using a virtual card:

Step 1: Sign Up with a Trusted Provider

Start by selecting a reputable virtual card provider that aligns with your business needs. You’ll need to ensure they offer secure features, easy management, and customer support. You can choose providers like Kodo in order to simply integrate virtual cards into your existing systems.

Step 2: Complete KYC Verification

To comply with regulatory requirements, you'll need to submit Know Your Customer (KYC) documents. This verification establishes your business as a legitimate company that can issue virtual cards, enhancing the security of your transactions.

Step 3: Access the Dashboard

Once verified, log in to the virtual card provider’s online dashboard. This is where you’ll create, manage, and monitor your virtual cards. The dashboard provides a user-friendly interface, giving you control over card details and transaction history in real-time.

Step 4: Create a New Virtual Card

Navigate to the 'Create New Card' section on your dashboard. Here, you can specify the purpose of the card, such as vendor payments or employee reimbursements. You can also choose whether the card will be single-use or multi-use, based on your needs.

Step 5: Set Spending Limits and Expiry Dates

Customise your virtual card by setting daily or monthly spending limits to control costs. You can also define an expiration date, after which the card becomes inactive. This adds an extra layer of control over your finances, preventing misuse and ensuring financial discipline within your business.

Step 6: Generate the Card Details

Upon confirmation, the system generates a unique 16-digit card number, CVV, and expiration date for your virtual card. These details are securely stored in the dashboard, and you can access them anytime. Ensure you store the information safely to avoid unauthorised access.

Step 7: Distribute Card Information

Share the generated card details with the appropriate users or vendors securely. You can send the information through encrypted emails or within your financial management platform. Ensure only authorised personnel have access to avoid accidental misuse or leaks.

Step 8: Monitor Transactions

You can easily use your provider's dashboard to track transactions made with the virtual card. Real-time tracking gives you full visibility over spending, allowing you to monitor and verify every purchase, preventing unauthorised expenditures.

Are you considering adopting virtual cards for your business? Kodo offers a comprehensive solution tailored to your needs to help manage your business expenses efficiently and securely.

What are the Benefits of Using Virtual Cards?

Virtual cards give businesses a faster, more secure, and flexible way to manage payments compared to traditional cards. They are built for the digital world, easier to issue, safer to use, and more transparent to track.

Let's discuss their benefits:

• Instant Activation: No need to wait for physical delivery. Virtual cards are issued and ready to use immediately, which is ideal for urgent purchases or vendor payments.

• Seamless Online Payments: Perfect for digital transactions, virtual cards work smoothly with e-commerce platforms and wallets. They also reduce the risk of loss or theft.

• Better Spend Control: You can set limits, expiry dates, or category restrictions to avoid overspending and make department-level budgeting more accountable.

• Enhanced Security: Each virtual card has a unique number, which reduces fraud risk. With no physical card to steal and built-in tokenisation and two-factor authentication, your payments stay secure.

• Easier Reconciliation: Every transaction is tagged with detailed data, making expense tracking and syncing with accounting tools faster and more accurate.

• Ideal for Subscriptions: Assign a virtual card to each subscription to track renewals clearly. You can cut off services instantly by disabling the card when needed.

• Cost-Effective: Virtual cards remove production and shipping fees and reduce admin work. This helps lower both direct and indirect costs.

• Global Usability: They are accepted across borders and support international purchases, subscriptions, and payments with ease.

While virtual cards offer numerous advantages, it's essential to be aware of their challenges and limitations as well.

Also read: Understanding How Corporate Credit Cards Work

Challenges and Limitations of Virtual Cards

While virtual cards offer significant advantages in terms of convenience and security, like any financial product, they come with their own set of challenges and limitations. You need to have a thorough understanding of these aspects before fully adopting virtual cards for your business.

Here are some common potential drawbacks of virtual cards:

• Acceptance Issues with Certain Merchants: Despite the growing adoption of virtual cards, some merchants, especially smaller ones, may not accept them due to unfamiliarity or technical limitations. This can lead to payment delays or the need to revert to traditional payment methods, potentially disrupting your business operations.

• Dependency on Internet Connectivity and Digital Devices: Virtual cards are entirely digital, meaning they require a stable internet connection and compatible devices for access. In areas with unreliable internet or for employees without suitable devices, this dependency can hinder timely transactions and access to funds.

• Potential Technical Issues and Support Scenarios: Technical glitches, such as system outages or compatibility issues with accounting software, can disrupt the functionality of virtual cards. Without prompt and effective customer support, these issues may lead to payment failures or reconciliation challenges, affecting your business's financial operations.

By proactively addressing these limitations, you can leverage the benefits of virtual cards while minimising potential disruptions.

Next, let’s explore some strategies associated with using virtual cards to maximise their advantages and ensure smooth financial operations.

Best Practices for Using Virtual Cards

Now that you’ve learned about the power and versatility of virtual cards, it's time to explore how you can optimise their use within your business. Certain strategies are crucial to ensure you’re maximising the advantages and minimising any risks associated with digital transactions.

To get the most out of virtual cards, your business must implement the following best practices.

1. Choose the Right Virtual Card Provider

You must select a provider that aligns with your business requirements. Look for features like real-time tracking, customisable spending controls, and seamless integration with your existing systems. A provider that offers instant card issuance and robust security measures can significantly enhance your financial operations.

2. Set Spending Limits and Expiration Dates for Virtual Cards

Establish clear spending limits and set expiration dates for each virtual card to prevent unauthorised transactions and ensure adherence to budgets. This practice allows you to control expenses effectively and reduces the risk of overspending, providing better financial oversight.

3. Track All Spending on Virtual Cards in Real Time

Utilise real-time tracking tools in order to monitor every transaction as it occurs. This immediate visibility helps in identifying any discrepancies or unauthorised activities promptly, allowing for swift corrective actions and maintaining financial integrity.

4. Educate Your Employees on Using Virtual Cards 

You must train your team on the proper use of virtual cards to make sure they understand the importance of safeguarding card details, recognising phishing attempts, and adhering to company policies. Educated employees are also less likely to fall victim to fraud and misuse.

5. Use Virtual Cards to Create a Separate Budget

Allocate specific virtual cards to different expense categories, such as marketing, travel, or office supplies, to track expenditures accurately. This segregation simplifies reconciliation processes and provides clearer insights into spending patterns, aiding in better financial planning.

6. Utilise Virtual Cards to Pay for Recurring Expenses

Assign virtual cards to recurring payments like subscriptions or vendor services to ensure timely and consistent payments. This approach reduces the chances of missed payments, maintains service continuity, and simplifies the management of regular expenses.

7. Use Virtual Cards to Make One-Time Purchases Only

For single-use transactions, issue a virtual card with a predefined limit and expiration date to enhance security and become inactive once the transaction is completed. This minimises the risk of unauthorised future charges and protects your financial data. 

Now, let’s explore how Kodo can be the perfect partner in elevating your virtual card experience.

Why Kodo is Built for Smarter Virtual Card Management

If you're looking for a virtual card solution that goes beyond basic payments, Kodo is purpose-built for businesses that want both control and speed. With Kodo, your finance team can issue corporate virtual cards in minutes while staying in control of every rupee spent.

• Instant Virtual Card Issuance: Issue virtual cards to your team within minutes through Kodo’s intuitive dashboard. Set cards up for specific use cases—vendor payments, online subscriptions, reimbursements, and more.

• Real-Time Spend Tracking: Gain immediate visibility into every transaction. Monitor team spending in real time to stay on top of cash flow and detect out-of-policy expenses early.

• Customisable Spend Controls: Set granular controls per card—monthly limits, merchant restrictions, transaction caps, and expiry dates. Ensure every card aligns with your internal spend policies.

• Streamlined Expense Reporting: Automate report generation with just a few clicks. Kodo’s dashboard compiles and organises all spend data, making audits and reconciliations fast and error-free.

• Unified Platform for All Business Payments: From purchase orders and vendor payments to reimbursements and card spend, Kodo brings it all into one centralised platform, eliminating manual work and tool switching.

• Seamless Integrations: Integrate with your existing finance stack to simplify approvals, workflows, and accounting, without disrupting current processes.

By choosing Kodo’s virtual cards, you can easily optimise your financial operations, leading to improved business operations and significant cost savings. Get yours now.

Summing It Up

If you’re looking to revolutionise the way your business handles payments, then understanding what a virtual card is and how it can benefit your financial operations is crucial. Virtual cards aren’t just a trend; they are a game-changing solution for modern businesses that need more control, security, and efficiency in managing their transactions.

With Kodo, your business gains access to a seamless virtual card solution designed for ease, control, and security. Our virtual cards come with advanced features like instant issuance, customisable spending controls, real-time tracking, and enhanced security measures to make your payments more efficient.

Book a call with Kodo today to discover how our virtual card solutions can simplify your financial operations, improve security, and help you scale smarter. 

FAQs

1. Are virtual cards safe to use?

Yes, virtual cards are secure. They feature advanced security features such as tokenisation, single-use authorisation, and real-time alerts. These measures significantly reduce the risk of fraud and identity theft, ensuring safe online transactions. Plus, you can instantly block or terminate a virtual card if needed.

2. Can virtual cards help manage my company’s spending?

Absolutely! Virtual cards give you complete control over your business’s spending. With customisable limits, real-time tracking, and detailed reports, you can manage your budget more effectively, enhancing financial oversight.

3. Are there any drawbacks to using virtual cards for business travel?

While virtual cards are excellent for managing business travel expenses, they may not always be accepted for in-person transactions. This can be limiting for certain expenses, like hotel check-ins or car rentals, which might require a physical card.

4. Are virtual cards free to use?

Most virtual card providers offer free basic features, but some may charge fees for advanced services like international transactions, customisation options, or additional user cards. Be sure to check your provider’s pricing structure to understand any potential costs before you start using it for business.