Shopping in person has become more complex during the pandemic as consumers seek to reduce the time they spend in public.
State mandates have also forced some businesses to close or limit on-premises operations, prompting such merchants to connect with consumers online instead.
Fraudsters have redoubled their attacks on eCommerce channels, however, making consumers more concerned about data security. Shoppers may be reluctant to hand over their card details to every online retailer, as each transaction represents another risk that consumers’ information could be exposed in a breach.
The growing dependence on eCommerce — as well as the intensifying demand to up the security of these transactions — sets the stage for greater virtual debit card use, and businesses are taking heed, according to Kelley Knutson, president of prepaid debit card provider Netspend.
“We’re seeing more and more merchants really starting to support this capability,” he said in a PYMNTS interview. “It’s been [happening] behind the scenes for a while, but during the pandemic, it’s really kicked off.”
Knutson explained how the virtual debit card space is evolving to support eCommerce and detailed what goes into a secure yet speedy virtual card application process.
Virtual Card Payment Trends
Security-conscious consumers are turning to virtual cards because they enable shoppers to make purchases without revealing their card numbers. These tools instead generate new authorizing numbers to be used with each different merchant, Knutson said. These can be one-time-use codes or numbers that the merchant can keep on file and charge for recurring purchases.
Merchants’ efforts to please shoppers have ushered in a wave of virtual card activity in recent months, Knutson said. Netspend observed many more of its prepaid card customers activate virtual wallet capabilities during the pandemic. The company’s overall virtual card spend during the third quarter of 2020 rose 793 percent year over year, while the number of virtual card transactions made by its customers grew 458 percent year over year during the same period, he reported. Consumers as a whole may be exhibiting similar trends toward virtual card uptake.
Adoption rates could rise even further in the near future as more retailers and other venues begin accepting virtual cards. The payment method could become even more normalized if ATM networks were to allow their machines to be used without physical cards, Knutson said.
“The catalyst for consumer behavior will be ATM networks and how quickly they’ll be more … [prepared] for PIN and NFC transactions without a card being involved in the verification process,” he said. “Once ATM networks get a certain level of adoption, you’ll know customer behavior has moved beyond it being a minority versus the norm.”
Consumers are expected to use virtual cards more often over time as the cards are accepted in a greater number of places.
Streamlining Onboarding Security
Consumers’ growing interest in virtual debit cards could be slowed down if the onboarding process is difficult, however, or if potential virtual card adopters do not believe they are safe from fraudsters. Card providers must ensure that bad actors cannot take over cardholders’ accounts and that identity thieves are not able to open new ones under stolen names. Maintaining consumer interest in the space will require providers to vet applicants in a way that thwarts threats without imposing burdens.
This makes it essential for card providers to act to maintain strong security as invisibly as possible. Knutson said that providers can achieve this by conducting behind-the-scenes verification and data gathering. Providers can examine the mobile devices that customers are using when applying for the cards and check that these are indeed associated with the identities presented during onboarding, for example. The card providers could also enlist third parties that have transacted with the customers before to help verify that new applicants’ behaviors match their established patterns.
“There’s a lot of third-party data we’re tapping into to draw some of those comparisons and do some level of verification without it being too intrusive or [taking] too long or [being] uncomfortable for the customers,” Knutson explained. “Because if … they have to go through a long, laborious and taxing process, the likelihood of them staying with you through the process goes down dramatically.”
Card providers can also use their own historical behavior data to confirm returning customers who are applying for new cards. Approaches like these help providers get deeper pictures of applicants without making consumers go through too many steps, Knutson said.
Applicants often want to get up and running quickly with their new virtual cards, and providers can help them do this securely by initially giving users limited capabilities and then requiring them to go through more intensive authentication measures to unlock more features. Providers might offer a quick onboarding experience and permit those who complete it to make virtual debit card transactions below certain values, for example, before removing the cap once applicants have had the time to go through more extensive security steps.
“A challenge is trying to get enough data to get them started and engaged in using [the cards] at least initially, then following up to capture more data elements,” Knutson said. “[You want to be] easing the customer in and making sure you don’t give too much access … on the initial transaction or two [because that] really protects the consumer … and allows [you] to manage risk and make sure that it’s the right consumer making those transactions.”
Convenience and security are top priority for many consumers who are more seriously managing their financial lives during the pandemic. Customers’ increased concerns over financial fraud and transaction frictions are leading many shoppers and merchants to embrace virtual debit cards. Positive experiences could inspire many to use these tools over the long term.