PayPal Virtual Credit Card Problems

The old face of credit.
The old face of credit. (Image: Image by, courtesy of Andres Rueda)

The online retail industry continues to grow. Despite the security concerns of many would-be online shoppers, thousands log on everyday to make purchases with their credit cards. To help calm consumer fears, companies like PayPal have become secure intermediaries, facilitating retail transactions and ensuring the security of a consumer’s credit and personal information. In 2007, PayPal began offering a virtual credit card product that might prove to be yet another safe way to buy online.


In 2003, as a response to a dramatic rise in online credit card fraud and identity theft, banks and other financial institutions introduced new virtual credit card technology. At the time, consumer research showed a large population of consumers who would otherwise participate in the online marketplace if not for the perceived risk of identity theft. Though the technology has been proven secure overall, many consumers still have concerns. In addition, many institutions have had operational difficulties that have inconvenienced many users of their virtual cards.


A virtual credit card works by having the issuer, in this case PayPal, generate a random 16-digit account number that is linked to the consumer’s prepaid PayPal account. Usually, the random account number is only temporary. In most cases, it can only be used for a single purchase, and only for a predetermined maximum amount. All user information attached to the original account remains secure since it is never transmitted online.


With instances of identity theft on the rise, many more consumers have recently begun to try virtual credit cards. However, as with any relatively new product, PayPal has received several user complaints. For example, when obtaining/activating the virtual credit card number, the customer is assessed a fee of $1.95. Consumers have complained that after being charged the fee, their credit card number was still inactive. And, after several attempts and charges, some consumers complained that their card numbers remained inactive. Also the restrictions on usage that ensure the virtual accounts’ security have also become an inconvenience for some consumers who want to make multiple purchases with different vendors. Finally, vendors have complained that obtaining these accounts is so easy that individuals may use a virtual credit account to defraud vendors, leaving them holding the bag.

Consumer Perception

Despite significant marketing effort by PayPal, many consumers are still reluctant to adopt the virtual credit card as a means to shop safely online. As a result, PayPal has focused its ongoing marketing efforts on getting virtual credit cards accepted into a younger demographic. By focusing on 16- to 25-year-olds who may not have developed an entrenched perception regarding their credit product, PayPal hopes to develop an upcoming market of new consumers.


Since introducing the PayPal Secure Card in 2007, PayPal has made numerous modifications to address customer concerns. In addition, PayPal has also added several features to their virtual credit cards like a rewards program, to make having the account more similar to a traditional account. Though market response continues to be mild, PayPal anticipates the market for virtual credit products to expand as demand for safe access to online shopping continues to grow.

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