There are more ways to complete a monetary transaction today than ever before. Cash, mobile wallets, credit cards and debit cards are the most common ones in many countries around the world. A new set of payment methods like P2P mobile apps, buy now pay later systems and virtual cash are becoming a part of the payment and prepayment solutions available for both customers and merchants.
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What is a Prepaid Card?
Like a debit or credit card, prepaid cards are one method of payment. The main differentiator between debit or credit cards and prepaid cards is the latter is not linked to any bank account or financial institution. A prepaid card works like any bank card, which is why they are also called prepaid debit cards. They are also popularly known as store value cards because they work as wallets that can receive and store money. A prepaid card is most often aligned with major card networks like Visa and Mastercard.
Types of Prepaid Cards:
Prepaid cards have multiple applications in various settings.
- Open-loop General Purpose Prepaid Cards are used the same way customers use credit or debit cards.
- Prepaid cards help governments provide benefits in many cases, such as unemployment, social benefits, social welfare etc.
- Businesses use prepaid cards to provide compensation for employees, like payroll, benefits and health savings.
- Closed-loop Prepaid Cards are used at a single business destination. One example of this is using a card at a retail store outlet repeatedly. If you run out of money, you can top up your card and use it again.
What Makes Prepaid Cards Popular?
Prepaid cards provide the functionalities of debit and credit cards, without the burden of setting up an account with a bank or any kind of financial institution. This is what makes them so popular.
Prepaid cards aren’t as commonly or widely used as credit or debit cards, but they are a big business nonetheless. In 2019, a report by Mercator Advisory Group showed that open-loop cards will grow 2% annually in the US till 2023.
Benefits of Prepaid Cards to Customers:
Prepaid cards have multiple benefits for customers. Whether it’s security or ease of use, there are several reasons to get a prepaid card.
- There is a lower risk of overspending. Prepaid cards pose a lesser risk of spending more than you can afford, a real risk that comes with credit cards. Most consumers with credit cards use tools that guide them to spend within a limit. Prepaid cards offer limited spending, limited to the balance amount in the card.
- It’s safer than cash. It is safer to carry a prepaid card than cash, making them a great option for those who travel. In case the card is stolen or lost, you can register easily and quickly for a new one.
- Easy to reload. Prepaid cards function almost exactly like debit or credit cards from major networks like Visa and Mastercard. Customers can reload or recharge their prepaid cards in many ways like bank transfers, direct deposits or cash both physical and online.
- A substitute for banks. According to an FDIC report, 6.5% of households in the US didn’t have a bank account. This means 8.4 million families have no savings account or bank account at all. Prepaid cards allow unbanked consumers to get access to payment services.
- A secure prepayment solution. Some customers are cautious while using credit and debit cards in certain situations. Prepaid cards offer a high level of anonymity and protection to customers.
One of the most secure, advanced and popular prepayment solutions today is the prepaid card. Getting a head start on this payment method can prove beneficial for both businesses and customers.
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