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Modulr glossary

Virtual Account / E-Money Account

A virtual account can refer either to a safeguarded digital electronic money (e-money) account that sits above a fiat bank account – ‘virtually’ – or one that exists independently. In this broad context, virtual accounts can refer to dedicated and specific e-money accounts created to receive or send specific funds, and general purpose accounts that exist for reasons beyond facilitating transactions, such as savings and investments. Virtual e-money accounts can be issued and managed via API, allowing instant creation and configuration, compared to traditional bank accounts that often require manual onboarding, physical paperwork, and longer approval times. E-money accounts can be deeply integrated into business platforms via real-time APIs, enabling automated payments, reconciliation, and embedded finance. These can be cheaper to open, maintain, and scale compared to physical accounts, especially when issued programmatically, and can embed automated AML, KYC, and transaction limits, offering control at the product level. The granularity and scale of these accounts can be especially useful in platforms or marketplaces managing money on behalf of users, as virtual accounts allow separation of funds without needing to onboard each client with a bank. Virtual e-money accounts are not a deposit product: they don’t earn interest, and providers cannot lend against them. While virtual e-money accounts are not FSCS protected (in the UK), unlike bank deposits, they are safeguarded via regulatory mechanisms that protect 100% of deposits, making them arguably more robust, particularly for large amounts.

Applications

E-commerce:

Reduces fraud in online card payments by verifying the cardholder's identity

Banking and fintech:

Helps issuers and payment providers comply with Strong Customer Authentication (SCA) requirements.

Advantages

  • Enhanced security: Reduces unauthorised transactions by verifying that the genuine account holder is authorising the payment
  • Fraud prevention: Helps reduce chargebacks related to fraud.

Challenges

  • User Experience: Additional authentication steps can cause friction and increase checkout abandonment
  • Implementation complexity: Requires integration with card schemes and issuer systems.

Related Terms

OTP Compliance Strong Customer Authentication PSD2
Item created by Modulr, Updated on
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