Prepaid cards

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Rohit Bhatnagar

Prepaid 'stored value' cards are a fast growing payment product category and a relatively newer addition to the family of card payments products. Unlike credit cards which are ' spend now and pay later' and debit cards which are ' spend now and pay now' products, prepaid cards require an amount to be stored or deposited upfront by the cardholder or a commercial entity. The deposited amount can then be used by the cardholder for point of sale transactions at merchants, at automated teller machines for cash withdrawals and at online merchants.

Prepaid cards are issued in two formats - reloadable and non-reloadable. The balance on a reloadable card can be replenished with a top-up initiated by the cardholders themselves or by a third party. Non-reloadable cards cannot be reloaded typically after the initial load amount has been exhausted. Reloadable prepaid cards are typically issued to a cardholder after an exhaustive KYC (Know Your Customer) check and operate in a similiar fashion to debit card products. An essential difference is that while each debit card is linked to an unique bank account, a prepaid card on the other hand usually points towards a common database file which contains records of prepaid card numbers and an open-to-buy balance against each prepaid card number. There is only one bank account, a pool account, which is used to store the cumulative monetary value deposited by cardholders under a particular prepaid product scheme. Non-reloadable prepaid cards are usually issued over-the-counter to walk in customers or over remore selling channels such as the web. Usually the Issuer of such cards does not retain cardholder information on file and as such such cards are also referred to as anonymous or disposable cards.

Typical prepaid card applications include :

Gift cards - these are disposable prepaid cards with a value which is fixed at the time of load. Gift cards are a replacement for cash gifts and gift certificates. Gift cards typically work at a point of sale terminal or on the internet for online purchases.

Travel cards - these are reloadable prepaid cards issued either in a foreign currency (in Europe, Asia & Latin America) or in a domestic currency (North America). Travel cards are a replacement for travellers cheques and foreign currency in cash form.

Payroll cards- Payroll cards are typically issued to blue collared workforce or employees in high attrition workplaces such as temporary staffing or call centres. The cardholder's wages are deposited in the prepaid account electronically by the employer. As such payroll cards can help reduce the cost of payroll transactions by eliminating the need for cash or cheque based payouts.