Virtual credit cards, which have struggled with adoption in other regions, are picking up steam in India.
Virtual credit cards allow users to set up an online credit account with a bank and then use this account to purchase goods and services over the Internet. The product has become popular in India as a means to reduce fraud risk.
"There are numerous needs that we saw in the India market and which were not getting fulfilled by the physical card businesses," says Philip Belamant, managing director at Net 1 Universal Electronic Payment System Technologies, which is working with Visa Inc. to roll out virtual credit cards in India. "Card consumers, especially the debit card customers, are still learning to trust e-commerce as a secure payment environment. And most of the e-commerce customers are between 18 and 26 years of age and hence are yet to own a physical card or bank account."
Indeed, while the use of conventional plastic payment cards for Internet purchases in India has been growing at the moderate rate of 7% to 10%, the rate of overall online transactions in the country has been more than double that rate, according to Belamant.
At the same time, fraud rates for international transactions coming from India have gone up. Hence, most of the e-commerce transactions in India are still dominated by cash on delivery and payment through private prepaid instruments like Itz Cash, he adds. The Net1-Visa virtual card launched in the Indian market in the second quarter of 2014, Belamant says.
Financial companies including ICICI Bank, Citibank India, Axis Bank, HDFC Bank, and SBI Cards (a joint venture between State Bank of India and General Electric) also issue virtual credit cards to customers in India. To establish a virtual card account, customers need to transfer funds from a separate account to the virtual one, set a payment limit and establish a password.
But although virtual cards are being welcomed in India, the same is not true in neighboring China, where the government earlier this year blocked the issuance of such accounts. Tencent Holdings Ltd., a rival of the mammoth Alibaba Group (China's answer to Amazon), was halted in mid-March from issuing virtual credit cards by the People's Bank of China. China's central bank cracked down on the technology due to concerns about safety risks.
However, greater security and less fraud risk are the main reasons Indian issuers are embracing the virtual card technology. Just recently, the state-run Reserve Bank of India reiterated that banks are allowed to issue virtual prepaid cards without seeking permission from India's central bank. "With the increased global rise of e-commerce fraud, consumers are becoming more and more aware of the risks of using their plastic cards for online payments," says Belamant. "Furthermore, virtual cards also enable the group of people who don't qualify for a credit card or bank account to make online payments."