The benefits of prepaid cards for businesses and consumers


May 15, 2020

How prepaid cards can benefit your business

Today there are more ways for shoppers to pay than ever before. Credit cards, debit cards, and cash continue to serve as the primary payment methods for most parts of the world. Newer options like digital wallets, peer-to-peer apps, and buy now pay later add to a variety of choices that make payments easy for businesses and consumers alike.

Among those payment options are prepaid cards. Prepaid cards are popular with consumers while offering small and growing businesses a wealth of benefits. They also deliver utility and value for consumers, businesses, governments, and financial institutions everywhere. Let’s take a closer look.

What are prepaid cards?

A prepaid card is a way to pay for goods and services just like a credit or debit card. The major difference between prepaid cards and credit and debit cards is that prepaid cards aren’t dependent on a link to a savings, checking, or credit account with a financial institution.

Prepaid cards work like credit and debit cards (hence they’re often called “prepaid debit cards”). They’re also called “stored value cards” since they act as a wallet of sorts that can receive money from a variety of sources, storing it for later use.

Prepaid cards are usually aligned with a branded card network like Mastercard or Visa and they can be used in-store, online, and in-app.

Are there different types of prepaid cards?

Prepaid cards are used in a wide variety of contexts and settings:

  • Open-loop general purpose prepaid cards allow consumers to use prepaid cards almost identically to credit cards and debit cards.
    1. Prepaid cards are used widely to deliver government benefits including social welfare, disability, unemployment, and veteran’s benefits.
    2. Businesses use prepaid cards for employee compensation including payroll, bonuses, and benefits such as health savings accounts (HSAs).
  • Closed-loop cards can only be used at one place of business. An example would be using the same card at your favorite coffee shop over and over again. Once the funds run out, you can load more money onto the same card for additional use.

Why are prepaid cards popular?

Prepaid cards are popular with consumers because they offer the utility of credit and debit cards without the commitment of setting up an account with a financial institution.

Prepaid cards occupy a much smaller piece of the payments pie than traditional credit cards or debit cards, but they’re far from a niche. In fact, prepaid cards are big business. In 2019, Mercator Advisory Group projected that open-loop prepaid cards in the US will grow by 2% per year through 2023, with load on Health Savings Accounts representing the biggest growth segment.

Should my business accept prepaid cards?

The short answer is yes. For merchants, accepting prepaid cards is easy. There’s often no additional hardware or software required to accept prepaid credit cards since they’re usually issued by the major card brands. The process of accepting prepaid cards can be the same as taking a credit or debit card. You may already be set up to accept prepaid cards. Consult with your payments provider to see just how easily you can accept this payment method.

How do prepaid cards benefit consumers?

Prepaid cards offer a wealth of benefits to consumers: there is less risk of overspending, they’re safer than cash, they’re easy to use and reload, and they’re a viable alternative to using traditional credit or debit cards.

  1. Less risk of overspending. Prepaid cards offer less risk of overspending than credit cards. It's easy to overspend with traditional payment cards. Many consumers prefer tools to guide them to better spending decisions. Prepaid cards limit spending to no more than the card balance.
  2. Safer than cash. Prepaid credit cards are safer to carry than cash, which make them great options for travelers. Quick and easy registration of prepaid cards protects consumers if the card is lost or stolen.
  3. Easy to use and reload. Though funding is different, prepaid cards work just like other credit and debit cards from the major card brand networks. Consumers can often reload their prepaid credit cards in a variety of ways, including via bank account transfers, direct deposit, or cash—both online and in-person.
  4. An alternative to banks. In 2018 the FDIC reported that 6.5% of US households were unbanked. That leaves 8.4 million US households that still need to operate in the economy without a checking or saving account. Prepaid cards offer unbanked consumers access to essential payment services.
  5. Secure alternative form of payment. Some consumers are wary of using their credit or debit cards in all situations for privacy and security reasons. Prepaid cards offer an additional level of anonymity and protection for personally identifiable information.

How can prepaid cards benefit my business?

Offering prepaid card options can improve customer loyalty and help capture customers who want a dedicated card to use at your business. We deliver everything your business needs to generate new revenue, increase brand exposure, and easily manage your card program. We have the experience you need to helping you set up prepaid and stored value card solutions. Contact one of our payment experts today to learn more about how we can help your business simply and flexibly connect to the future of commerce.