In the banking world, there are many different types of numbers. Each one has its unique functions and use cases. There’s the transaction authentication number, NUBAN, and even virtual account numbers to mention a few.
Virtual account numbers in particular are very unique given their multi-functional nature. This article is designed to familiarize you with what they are and how they work.
What is a Virtual Account Number?
A Virtual Account Number, often written as VA, is a conceptualized version of a regular account number. VAs serve the same function as any account number and will work exactly like one. They serve as a substitute for a user’s actual account number, it also provides a layer of security for online transactions.
Banks are mostly responsible for issuing virtual account numbers to their customers as part of their fraud prevention measures. In the US, virtual account numbers are typically linked to customers existing credit or debit cards and can be accessed through the bank’s online portal or mobile app.
However, in Nigeria, virtual account numbers are commonly issued by payment apps to make it easy for their customers to receive payment or fund their wallets. They are generated directly on financial technology (fintech) applications/websites. Some of these apps may require you to provide your bank verification number (BVN).
How Virtual Account Numbers Work
Let’s say for instance, that you are making a transfer to a virtual account number as payment for a service you received.
You will open your mobile banking application and proceed to click the “transfer” button. At the appropriate screen, you will input the recipient’s virtual account number, a payment amount, and any remark you wish to add. The next step is to click “send” and wait for your transfer to be processed.
The payment you just made will utilize a traditional bank transfer system. This could be NEFT, RTGS, or IMPS.
The fund moves through this network to a nodal/escrow payment gateway account. Such nodal accounts are operated by services like Flutterwave and Monnify. They serve as a transition point from where funds on traditional systems are transferred onto virtual account networks.
As the transfer reaches this stage, funds move from the nodal account onto virtual accounts owned and managed by the same service provider. This then sets the stage for the final transaction. Here, funds from the service provider’s virtual account are transferred to the payee’s virtual account number.
Ordinarily, receiving funds in the recipient’s virtual account marks the end of the transaction.
But on the technical side of things - there’s one last step. This is the transfer of funds from the recipient’s virtual account number to their traditional or actual account number.
Are Virtual Account Numbers Secure for Transactions?
There’s usually the question of how secure it is to send or receive money using a virtual account. The simple answer is that it is extremely safe - and you have nothing to worry about.
Transfers to virtual accounts require you to input your pin. This ensures that the authorization comes from you and no one else. Moreover, unlike traditional transactions, virtual account transactions cannot be duplicated.
The one last thing that makes virtual account numbers secure for transactions is the very nature of such numbers. As they are a shadow of actual account numbers, they can be done away with at any time. The user’s real account number will remain protected.
Pros of a Virtual Account Number
User Identification
Every number used in banking and financial systems serves as an ID. They either identify users, transactions, or sending/receiving institutions. In the case of a virtual account number, the identification points to the user or owner of an account.
Inputting this number in a transfer screen of a mobile banking app will display the name of the account holder.
Creates a Layer of Security
It is possible to set a virtual account number to expire once a transaction is successfully concluded. As such, the number cannot be used by fraudulent websites or individuals who have had access to it.
Aside from this very spectacular feature, a virtual account number also creates a layer of security on a user’s account. This is because it hides their actual account number, securing such accounts from being hacked.
Offers Control
A lot of control comes with owning a virtual account number. For starters, there’s a lock and unlock feature that can temporarily disable transactions. There are also ways to set spending limits and terminate the number like we explained under security.
Provides Convenience
Virtual account numbers are easier to deal with than their traditional counterparts. This is so because they can be created at the press of a button online.
Cons of a Virtual Account Number
You’d agree that virtual account numbers have an upper hand over traditional account numbers. That’s correct. But these account numbers also have their downsides.
For instance, they may not work well for pick-up transactions where a physical card is required for confirmation or payment. This is because the actual account number linked to your card differs from the virtual account number.
Other situations such as public service reservations in hotels or restaurants could turn out complicated for the same reasons as above.
Also, you may be unable to deposit into a virtual account number by visiting a bank branch, as most bank tellers in Nigeria are unable to process deposit transactions to a virtual account number.
Virtual Account Number vs Real Account Number
The major highlight of the difference between virtual and real account numbers is that virtual account numbers do not hold money.
They simply serve as a channel for funds transfer.
Ultimately, when funds reach these accounts, the transaction details get recorded/documented. The money then moves on to the traditional account number linked to such a virtual account.
Conclusion
Every single feature or benefit of a traditional account number applies to VAs too. This includes uniqueness, use for inbound and outbound transfers, security, savings, and fees or service charges. Despite their close similarities, however, the virtual account number remains distinct and highly functional.
