What is a prepaid card?

Prepaid cards can be viewed as pay as you go bank accounts. A prepaid card has the look and feel of a credit or debit card, however, it does not allow the customer to go overdrawn, or be forced into credit. There are no penalties or related interest charges which may accrue from a credit card. Instead, the customer loads on money (from various sources like payroll, bank transfer, or using PayPoint) and then uses it in-store, online, and even to withdraw cash at an ATM wherever the MasterCard® or Maestro® marks are accepted.

The Payment Card Industry

The payment card industry is undergoing a revolution through the emergence of prepaid cards. The industry is being helped by the trend moving towards electronic payments as opposed to cash-based payments, and as debit continues to gain ground on other payment forms, the use of prepaid cards, which are essentially debit products, is set to see even further significant growth over the next few years.

Prepaid Card Uses

Prepaid cards can be used for a multitude of purposes – money remittance, travel cards, employee payroll cards, gift cards, telephone cards, expense cards and others – and also enable those consumers who were previously excluded from traditional banking relationships to make card-based payments including on line payments and purchases, along with other services such as money transfers. Research suggests that in the US alone, prepaid transactions are expected to grow by more than 300 percent by 2009, and it is the US that is currently leading the world in both the issuance and usage of these cards.

Online Shopping

Online shopping, in particular due to the need to pay for purchases with a card, is potentially a key driver for prepaid cards. The UK annual growth rate for online sales has shown a 15.1% rise from 18.3% to 33.4% over the period of 2002-2006. This was 13 times faster than that of the retail sector as a whole. The rise is expected to show sales of £28 billion in 2011 from £10.9 billion in 2006, which rose from £3.2 billion since 2002.

Prepaid Card Research

According to MasterCard, Prepaid Cards are expected to represent 7.9% of card volumes in Europe by 2010 The flow of migrants across Europe, tighter worldwide credit, weaker global economies, increasing identity theft, and changing attitudes to debt are coming together to create the environment for the rapid growth of the Prepaid Card market An Alliance and Leicester representative wrote in September 2007: The European prepaid market is currently only in its infancy, but this is set to change with the number of cards in circulation estimated to grow at over 110% a year for the next four years. Once ‘loaded’ with funds Prepaid Cards work in the same way as traditional credit and debit cards, and can be used wherever MasterCard® or International Maestro® cards are accepted. They can be used at point of sale, online or to withdraw cash from ATM’s.

Prepaid Card Benefits

Prepaid Cards have the following additional benefits over credit cards:

• They enable instant domestic and international ‘Money Transfer’ by topping up a “Companion Card” from the Primary Card. The Companion card, or cards, can then be used by someone anywhere in the world where they see the MasterCard/Maestro® acceptance sign.
• Security over the amount that can be spent on the card is improved by being able to control the amount of money on the card, and therefore money available to spend, rather than being exposed to the fluctuating credit limits given by credit card companies.
• There are no penalty charges resulting from late payment of bills as Prepaid Cards cannot be ‘overdrawn’. Prepaid Cards can be acquired without the need for traditional time consuming and complex bank applications (no credit checks, no need to have a good credit history, longevity of residence, or minimum income requirements).