PayPal is officially ending its PayPal Key service

For a certain group of savvy users, PayPal Key lost its luster some time ago and PayPal will officially axe the service soon. 

Staying true to form, PayPal provided conflicting dates related to the discontinuation of the service. While the email sent to PayPal Key users states, “Starting April 20, 2022, you will no longer be able to use your PayPal Key Virtual Cards,” the help section that the email links to says, “Any new transactions with a PayPal Key virtual card number will be declined starting April 21, 2022.” Another section of PayPal’s site says, “On April 21, 2022, PayPal will remove the PayPal Key feature for all existing customers and any new transactions using their virtual card number will be declined.”

The virtual card service, which launched in 2020, allows users to obtain a virtual debit card number. This virtual card number could initially be used almost anywhere debit cards are accepted. When users pay with their PayPal Key, the payment is deducted either from the user’s PayPal balance or a debit, credit, or prepaid card that the user linked to their PayPal Key account.

For some time, most payment processors recognized PayPal Key as a debit card, which made the service quite popular amongst the credit card points gamers. The beauty is that credit card points and rewards chasers could link a credit card to PayPal Key and pay low or no transaction fees at companies that charge lower fees for debit card payments (versus credit card payments), all while racking up credit card points and rewards.

As an example, a rent payment service, which coincidentally shut down its services again in 2021, charged users 2.99% to pay their rent with a credit card, and a flat fee of just $4.95 to pay with a debit card. You do the math and you can see that it’s no surprise that some companies, including American Express cried “foul”. The complaints eventually resorted in PayPal not allowing American Express cards to be linked to PayPal Key. In addition, the number of companies that started categorizing PayPal Key as credit (and not debit) continued to increase, making the service not worthwhile for a certain savvy group of users.

Outside of the loopholes, PayPal Key, while pretty bland, still filled a void. While some credit card companies, like Capital One, offer virtual card numbers, but only for credit cards issued by them. There are also services that offer virtual cards, but for a fee. PayPal did almost the opposite with its PayPal Key service, as it allowed customers to link almost any debit, credit, or prepaid card, with the exception of PayPal-issued cards.

Even PayPal Key’s defects had value to a subset of users. One of the drawbacks of PayPal Key is that although the user could link a number of cards to their PayPal Key, they could only have one PayPal Key or virtual card number at a time. This caused issues for some users. But, some learned to use this loophole to their advantage. For example, if someone made a purchase and had their prepaid card assigned as the payment source, but later changed the payment source and got a refund a week later, the refund would be applied to the payment source, which, for some users, was their PayPal balance. 

PayPal has indicated that after PayPal Key is discontinued, any refunds issued will be applied to the customer’s original payment source or PayPal balance.