In today’s highly connected and modern world, using plastic cards for purchase and withdrawals transactions has become commonplace. In other words, it has become almost impossible for consumers nowadays to go about their day-to-day activities without using a debit, credit, or prepaid card.
If we look at all the amazing benefits that comes with using a prepaid card, it’s easy to see why they have experienced such a massive spike in popularity over the years. Of the 3 mentioned, prepaid cards are considered relatively new. However, with their unbeatable benefits, it’s not surprising they have gotten quite a reception.
The Lowdown on Prepaid Cards
After the introduction of debit cards in 1984, a fresh and highly innovative financial tool was also presented—the amazing prepaid card. Just like its predecessors, prepaid cards have been welcomed warmly and have become almost a staple since they were first introduced in the market.
In fact, a staggering 6 billion transactions were done using prepaid cards in 2010 alone. That’s according to a research conducted by the Federal Reserve Payments Study. In addition, the total amount of transactions performed using prepaid cards amounted to a total of $140 billion in 2009.
While they share many surface similarities, prepaid cards are actually different from both debit and credit cards. For starters, unlike the two, prepaid cards are not linked to any bank account.
Also referred to as pay-as-you-go cards, the amount of purchase done using the prepaid card is deducted automatically from the balance available on the card. If the balance has been depleted, the card is considered “empty” and cannot be used until money is loaded onto it again.
While there are prepaid cards that are designed for one time use, others are designed to be “reloadable.” In other words, cardholders can easily load money onto the card through direct deposits or secure online portals, among many others.
Prepaid cards designed for one time use are discarded once the balance on the said card has been depleted. As prepaid cards have gotten quite popular, more and more people have been using them for a vast range of transactions.
While unbanked and underbanked individuals have easy access to other financial tools, many have preferred using prepaid cards to circumvent costly bank fees and charges. In addition, prepaid cards have also become the ultimate choice of parents who are looking for a wise way to distribute allowance to their kids. It has also become one of the most effective tools used to teach kids about proper money management.
Different Types of Prepaid Cards
Open-system prepaid cards. These cards are associated with established financial and electronic networks. The card issuer is responsible as far as maintaining the value of the card is concerned. The card’s value is easily accessed using a unique card number that’s embedded on the card’s magnetic strip.
Closed-system prepaid cards. These types of cards are merchant specific. They are also classified as non-reloadable. Monetary value of closed-system prepaid cards is also stored on the card itself.