The Subscriber Purchases a Number From a Financial Institution
The first step in using a temporary Internet credit card is to open and fund a card account. While some banks will allow users to simply link a temporary card to an existing account, others require a separate, unlinked account dedicated to the temporary card. Once the user either links an existing account or opens and funds a new, temporary, dedicated account, the bank issues a 16-digit account number associated with that account. Most banks also issue an expiration date (generally three to six months out) and a card security code (commonly known as a "CCV" code).
The Subscriber Uses the Account Number
Once the temporary account number is issued, the subscriber uses the number just like any other credit card account. Because most temporary card numbers are good only for Internet transactions, the user must surf to an online merchant and complete a transaction before the expiration date issued by the bank. The issued account number is in the same format as traditional Visa or Mastercard numbers, making the transaction seamless from the merchant's point of view.
The Merchant Processes the Card
When a user makes a purchase online and supplies the temporary card number, the merchant processes the transaction just like any other account. The first 8 digits in the card number identify the issuing bank, and the credit card network use this information to direct the transaction for proper processing. If sufficient funds are available in the linked or dedicated account, the transaction amount is debited from the user and credited to the merchant.
The Card Number is Recycled
After the user completes his online shopping, he may either choose to surrender the temporary account number or, if allowed by the bank, replenish the account for more transactions. If the user chooses to close the account, the bank will take the temporary account number out of circulation for a period of time (depending on bank policies, this period may range from 90 days to one year) then reissues the number with a different expiration date and CCV. These institutions verify the expiration date and CCV with each transaction, ensuring the recycled number is not charged against the previous cardholder.
Fraud Concerns
Because Internet credit cards are opened without the security measures common in face-to-face transactions, some users have expressed concerns over possible fraud using these accounts. Indeed, the online nature of these accounts makes identity verification--such as that performed by using a driver license or photo ID--less than practical. For this reason, some banks have mistakenly issued, and attempted to collect on, fraudulent accounts.
Some banks have tried to combat the potential for fraud by requiring an initial deposit or link to established accounts (such as credit card, savings or checking accounts). Other banks now require, record and verify identifying documents such as a valid driver's license or passport number entered online. The most secure financial institutions may require some users to physically enter a branch office and present photo identification in order to activate their accounts.
