What Is a Virtual Card, How It Works, and How To Get One as a Small Business

A virtual card, often called a digital spending card, is a new way to make purchases without using your physical card. The question of what is a virtual card and how to get one is increasingly answered by fintechs and, increasingly, high street banks.

Small businesses in the UK are interested in these digital cards because they’re a safe, easy way to make purchases online. 

The three main use cases include:

• Deactivation after a purchase to protect against fraud;
• Issue to employees for spending; 
• Have cards specifically for certain subscriptions for either reconciliation or to prevent overspending.

There are vastly more payment methods than a decade ago, yet it’s virtual cards that are set to grow their role in the UK economy for both business owners and customers.

Virtual Cards for Business: Key Facts and Statistics

While high street banks lag behind, electronic money institutions (EMIs), fintechs, and regulators are finding ways to take the friction out of spending. This contributes to improved trust, confidence, and economic growth. 

Security and convenience are the two main drivers of adopting new payment methods. While a virtual card might be attached to your main business bank account, it may simply be issued by the provider you use for making international payments. 

Forecasts show that virtual cards will play a growing role in the economy:

• Virtual card transaction count is expected to reach 175 billion (globally) by 2028.
• The number of virtual card transactions is expected to hit $17.4 trillion (globally) by 2029.
• The prepaid card market is expected to grow by 19.55% per year until 2034.
• In 2024, 64% of all payments made in the UK were by card. This is expected to rise.
• Over 57% of UK adults used mobile wallets in 2024.

Managing working capital in a tough economy is a key concern for small UK businesses, and while some effort is going into short-term financing solutions, many are turning to products that make day-to-day spending more streamlined and efficient, like virtual cards.

Virtual Card Definition and Types

Virtual cards might be radical in their impact and use cases, but the technology driving them is similar to a traditional bank card. Virtual debit cards are functionally the same as a physical Visa or Mastercard, but the merchant can see you’re using one. 

Most virtual cards can be added to a mobile wallet.

All virtual debit cards have:

• Unique 16-digit card number;
• 3-digit CVV;
• Expiration date.

Through payment network metadata, BIN databases, and fraud/risk systems, it’s possible to see what type of card you’re using. If it’s a disposable, one-time use virtual card, you may be rejected from using it for subscriptions and free trials that expect future payments. Even if it’s in a virtual wallet.

There are two types of virtual cards:

• Single-use cards are designed to expire immediately after the first transaction. This is fantastic for security when buying from unknown vendors.
  
• Recurring (permanent) virtual cards are ideal for issuing to staff or using for ongoing costs, like monthly subscriptions or utility bills.

Example: A freelance photographer who stumbles on the perfect Lightroom Presets, but are being sold on a website that lacks credibility. They can use a single-use virtual card to make a high-risk, small purchase. Fraud risk around stealing the card details is minimised after the card is destroyed.

Real-World Examples of Virtual Card Use

Below are some real-life use cases of virtual cards for small and medium businesses.

Marketing Agency

UK marketing agencies have to manage vast ad spends across many different platforms – often on concurrent campaigns. 

Creating separate cards for each client can help keep the account cleaner and have direct control over the budget (rather than relying on the ad platform alone for spending limits).

Local Workshop

A high street tailor can issue their new 18-year-old intern a virtual card with a £100 per week spending limit to buy supplies. This is a great way for the intern to build experience while keeping risk down. 

Being able to set spending limits helps the owner allocate more responsibilities, freeing up their own time for more workshops and seminars.

The Freelancer

Freelancers are often working with international software and clients, meaning they must deal with different currencies. 

To limit the risk of fluctuating currencies, the freelancer can use a provider that offers forwarding products to lock in a GBP-USD rate. They can use the virtual card provided so their monthly subscription to American SaaS remains at a steady price. This makes cash flow forecasting easier.

Remote Stipends

It’s common to get virtual cards to help businesses manage their home office stipends and employee perks. 

It replaces the manual reimbursement process – the digital solution makes the employee’s life easier, all while giving the company better visibility over how it’s spent.

Key Characteristics of a Virtual Card System

One of the defining experiences of using a virtual card is how quickly they are issued. In most cases, it’s instant. Within seconds, you can create virtual cards.

What’s less of a guarantee and more dependent on the provider is the level of control you have over the card. While most will allow instant freezing, deactivation, and adding to mobile wallets, features like spending limits and employee issuance are available at myPOS, but not all providers. 

All virtual cards will show up on transactions and be reconciled, usually with their defining name or ID. Virtual card transactions can usually be synced directly with accounting software for better categorisation, though integrations are also provider-specific. 

When you can create virtual cards in seconds, typically facilitated by either Visa or MasterCard, there are more opportunities for features. 

Innovative features that are now possible include:

• API-issued virtual cards that are automatically generated (e.g., when a new employee joins the payroll);
• Real-time funding, where the card is unfunded until an approved transaction occurs; 
• Tokenisation for mobile wallet security; 
• Spending controls relating to time, country, category or by merchant;
• Issuing virtual cards to AI agents for autonomous spending with careful rules and limits;
• Dynamic CVVs, such as a monthly refresh, for extra security.

Example: A small cafe owner hires a new event manager, but the project deadline is only three weeks away. Instead of waiting for a physical card to arrive, they instantly create a virtual token and set parameters for only a handful of catering supply merchants.

Benefits of Using Virtual Cards for Small Businesses

Using virtual cards can directly impact a small business’s bottom line. Below are the key benefits of swapping out your primary bank account number for a virtual card.

Benefit	Impact
Security	Having unique digital tokens can protect your main bank account. Cards can be routinely destroyed and issued to reduce fraud. 43% of UK businesses have experienced a cyber attack or breach in the past year.
Liquidity	Having multiple virtual cards linked to a single central account gives you better liquidity management, especially when combined with an instant settlement account, like at myPOS.
Simple Bookkeeping	Auto-categorisation and having designated cards for different merchants, clients, and categories can all help tag expenses more effectively. Admin is reduced, while analysis is more visible.
Subscriptions and Free Trials	When trying out Freemium subscriptions, virtual cards allow you to instantly destroy the card after signing up to ensure you’re not charged for a service you forgot about.
Live Oversight	Administrators can see spending as it happens. If an employee is overspending, limits can be placed. If card details are stolen, they can be destroyed.
Cost Efficiency	Physical card issuance can sometimes cost, along with delivery fees. These are avoided, despite it being an instant service.
Spend Control	Custom limits on individual cards bring greater control over expenses and allow more freedom to allocate responsibilities.

Many small business owners adopt virtual cards for strictly security reasons, only to then discover the benefits of SaaS free trials, where you can cut the risk of being charged £200+ a month for a service you forgot to cancel.

Challenges and Limitations of Virtual Payment Cards

Virtual cards have several use cases, but they’re not perfect. In many instances, a physical business card is still necessary, such as withdrawing cash from an ATM. 

Below are the main limitations to consider.

Limitation	Impact
Physical Verification	Some hotels and car rental agencies still ask for a physical card for check-in holds or identity verification.
ATM withdrawal & payment limits	When paying in person, biometric authentication is used to approve mobile wallet virtual card transactions (many prefer this, but it carries its own unique risks). For ATM withdrawals, virtual cards are typically not an option.
Technical Dependency	Access is always reliant on hardware. So, a dead smartphone battery means you cannot make an in-person purchase. A lack of internet connection can prevent you from retrieving card details if asked for a PIN or CVV.
Legacy Systems	A small minority of older payment processors may not yet support virtual tokens.
Blocked Payments	While a permanent virtual card is usually accepted, one-time use virtual cards are often rejected when paying for subscriptions.

Clearly, it’s not a matter of virtual cards vs physical cards – they are complementary, so it isn’t one or the other. As long as you do not become complacent and stop carrying a physical card altogether, virtual cards can be an asset, not a hindrance.

How to Get Virtual Cards for Your Small Business

For those wondering how to get a virtual card, the process is often unsurprisingly simpler and easier than a traditional banking card.

Most virtual card providers allow you to apply online. While the account itself will require checks, like a photo ID and a selfie, the process of issuing the virtual card is usually done in-app. From here, the features depend on the provider, but there may be options to issue various cards, each with its own limits. 

Step 1: Evaluate Your Spending Needs

Before you open an account, you need to assess how your business spends money to make sure this will be the right tool. An overcomplicated wallet may be unnecessary.

Here’s how to proceed:

• Ask yourself if you require cards for ongoing software subscriptions, employee travel expenses, one-time purchases, or all of the above.
  
• Identify your high-volume vendors (e.g., cloud hosting) and ask if a dedicated virtual card would improve reconciliation and security.
  
• Think about what the frequency of virtual card payments will be.

While there aren’t many risks involved in having a virtual card, it’s still worth identifying whether it suits your business needs.

Step 2: Choose a Digital Banking or FinTech Partner

Once you better understand your own business needs, you can then compare traditional banks to fintech providers to find the best product for you. Fintech usually has the advantage, particularly when agility beats legacy.

Here’s how to choose the right provider:

• Review the fee structures to avoid unexpected costs.
• Is virtual card issuance free? Is there a cap on how many you can use?
• Are there the features needed, such as employee issuance, custom limitations, etc?
• Are there integration capabilities, particularly with your chosen accounting software?

For many UK SMEs, it can be worthwhile using multiple providers. While a single POS and payment provider is usually recommended, having several accounts for expenses is common practice as long as they don’t mix with personal money.

Step 3: Open and Verify a Business Account

Whether your chosen provider is a regulated bank or EMI, you will be required to undergo Know Your Customer checks. 

• If incorporated, gather company registration details from Companies House.
• Provide proof of personal identity (usually a photo of your driving license or passport) and proof of UK residential address.
• Submit your business Tax ID or UTR if asked.

For incorporated businesses, application times can be longer as they must be checked against Companies House records. Most financial institutions now have a fully online application process.

Step 4: Create and Assign Your First Card

When your account goes live (usually within 1-7 days), you can issue a business virtual card.

Here are a few important details to consider:

• If possible, name the virtual card for its purpose, such as “Office Travel” or “Software”.
• Set strict budgets, even if you don’t have a number in mind. If nothing else, it’s a security feature against fraud.
• Link the new virtual card to mobile wallets like Apple Pay, Google Pay, Samsung Pay, among others, to make it faster to pay both online and in-person

Contactless payments are still possible, but they will now require a smartphone. If your smartphone is out of battery, your only option for in-person payments becomes your physical card, which may share the same account.

Step 5: Automate Expense Reporting

To streamline your finances, you need to connect your new payment methods to your accounting process. Closing this loop will make sure every pound is accounted for automatically.

• Name and tag your virtual cards where appropriate.
• Upload receipt capture where possible.
• Connect the card’s account to your accounting tool (e.g., via Open Banking).

Automating this is the best defence against manual human error. It will also help produce a more accurate picture of your expected tax bill, spending patterns and general cash flow situation.

Managing Finances and Cash Flow with Virtual Tools

Cash flow monitoring and accounting have been the main beneficiaries of the introduction of Open Banking back in 2018. Without needing custom integrations, regulated financial apps can use standardised APIs to gain secure access to multiple business bank accounts simultaneously. With the improvements of auto-categorisation, bookkeeping is becoming automated and more insightful.

Virtual cards fit into the picture via tokenisation, a technology facilitated by Visa and Mastercard to generate card credentials in an instant.

These two technologies converge because of the cloud-based card issuing infrastructure and APIs involved. We can assign a single (aptly named) virtual card to a recurring software subscription. If we struggle to cancel the subscription or forget the login details, we can just terminate the card.

All of your virtual cards - of which you can have tens, if not hundreds - are centralised in one app and appear on your transactions. It’s yet another categorisation lever you can pull, if needed. Via Open Banking, virtual card transactions typically appear on our accounting software, depending on the provider.

Consider a tech startup relying on cloud hosting servers. By assigning a dedicated recurring virtual card to this vendor, they can avoid expiration concerns in some cases. If a physical card gets stolen, it must be terminated. A dedicated virtual card avoids being terminated with it, meaning a failed payment and potential server downtime is avoided.

myPOS Virtual Card Solution for Your UK SME

A strong virtual card setup for UK SMEs, like the myPOS product, isn’t so much about replacing your bank card - it’s about reorganising how money moves through the business. 

By using the myPOS app, businesses stop treating all spending as one pool of transactions. Controlled siloing has many advantages, especially when integrated with an instant settlement account.

For example, a growing online shop can use the myPOS platform to separate its software costs, marketing budget and inventory purchases. Since myPOS supports multi-currency accounts, each category can be managed in its respective currency for better exchange rate risk.

By separating them, we may see a spike in costs from one card - perhaps the software provider has auto-upgraded our subscription. Or, we may find that one card has a gap in its payments, alerting us to a missed invoice that we may otherwise have missed.

These benefits compound when introducing employees. Should you hire a freelance marketer, they can be issued three myPOS virtual cards for their AdSense, Meta, and TikTok campaigns, respectively. Should there be any irregularity with Meta, you can freeze that card without interrupting the campaigns at TikTok and AdSense.

Conclusion

Virtual cards were initially viewed as a defensive security tool, but soon became a proactive operational and bookkeeping tactic for lean UK small businesses. With cyber threats and fraud on the rise, virtual cards offer a contained product that creates nuanced control over your spending and employees. The days of staff counting up their fuel receipts are long gone. 

Virtual cards help streamline expenses, save money on multiple card issuances, and give better visibility over our finances in real time. While they’re not a replacement for a physical card, they have synergistic benefits when used together.

Frequently Asked Questions

How do virtual cards differ from standard UK business debit cards?

Virtual cards are digital only. This means they are issued and managed on your provider’s app, where they can either type in the card details for online purchases or integrate them into a mobile wallet for in-person and faster online payments.

Can I set individual spending limits for UK staff on virtual cards?

Yes, you can typically set spending limits for each card, but this will depend on the account provider. The limits may be adjustable in real time within your app.

Do virtual cards protect my UK business bank account from online fraud?

Virtual cards provide protection in various ways. Firstly, the digital card is separate from your primary account number. Secondly, the virtual card can be terminated at a moment's notice. In some cases, a regular CVV refresh can provide security to more permanent virtual cards.

How do I get a virtual card for my UK Limited Company instantly?

Most virtual card providers require an online application, requiring company registration documents, along with photo proof of ID and residential address.

Do UK virtual cards support Apple Pay and Google Pay for in-store use?

Most virtual cards link to Apple Pay and Google Pay, as this is the only option for contactless payments.

Can I restrict cards to work only for specific merchant categories?

Typically, yes, but this depends on the provider. It’s common to allow restrictions, such as fuel station purchases only.