Does using a temporary online credit card really provide protection?
Over a decade ago during the early days of Paypal, they launched a feature to generate temporary credit card numbers for online shopping (well technically they were debit card numbers, but you get the ideea).
One time I used this virtual number for a purchase from shady merchant and lo and behold, they ended up pounding me with unauthorized charges afterward. As far as protection goes, it was essentially worthless because the disputed charges still wiped out my Paypal account balance.
This is the problem with temporary credit card numbers… ultimately they do nothing to stop fraud. As long as the virtual account number is active cyber-criminals and fraudsters can charge to their heart’s content – using up your credit limit or shrinking the available spending power on your debit card.
There’s really only one advantage
Now if the aforementioned happened, obviously you can dispute the charges and get your money back if they were unauthorized. But that offers no advantage over disputing charges made on your regular debit/credit card numbers: both involve the same dispute process and both will distort your account balance (at least until the charges are reported and reversed).
At the end of the day, the only advantage of using a temporary card number is that if it’s abused, you only have to cancel that number instead of your main account number.
Some are more dangerous than others
You can create temporary credit card numbers for Chase, Citi, Bank of America, Discover and most other major issuers (excluding American Express). But not all are created equal…
Types of temporary card numbers
|The “use everywhere” type||Some only give you one virtual account number. You can then use it whenever you want for online transactions. The problem with this type is that over time you will be using it at multiple merchants. This is how Paypal does it.|
|The one-time use type||With this kind, the temporary number is generated for one-merchant only. That way if the number is compromised, no one else can use it. Citi offers this as a free feature on their credit cards. Bank of America’s “ShopSafe” is similar but with fewer features.|
Between these two options the first is clearly more dangerous (though more convenient), since you can’t restrict using it to a specific merchant. So should you choose to use these, go with the ones that give you a unique number on a per-merchant or one time use basis.
But never, ever use a debit account
The problem with a Paypal virtual credit card number (and all debit cards) is that if your account gets hit with fraudulent charges, your balance will be affected. Even if that’s only temporary and you are able to reverse the charges, there will still be a period of time where the money isn’t there and that could cause checks to bounce if it happened with your checking account. Not to mention that debit card protections are just substandard across the board compared to credit cards. First off, when you use a debit card you are using your own money. Banks won’t go to bat for you like they do when it’s their money on the line, as with a credit card. And worse yet, you have to notice and report debit card fraud really quickly. By law, your liability is limited to $50 if you report it within two days but quickly jumps to $500 after that. Beyond 60 days you technically have no limit to the liability you could incur, meaning the entire balance of your checking account could get wiped out in an instant. This is why debit cards are so risky to use and credit cards are the way to go, as they offer so much more fraud protection.