Traditionally, prepaid cards were thought to be for unbanked or underbanked people who cannot get a checking account or qualify for a credit card. As payment trends shifted from cash and checks to debit and credit, prepaid cards were a solution that allowed people without bank accounts to purchase online items, pay over the phone, make collect calls and track spending.
Prepaid cards have matured and found their own value proposition in several areas other than just being a replacement for credit cards and checking accounts. They are uniquely fulfilling the needs that were left unaddressed by traditional payment products:
- Student cards for university funds disbursement :
Rather than waiting for scholarship and loan checks to be cut, mailed and sent, universities can now quickly and efficiently, load funds on student cards that act as both student IDs and prepaid debit cards. Not only is it easier to track allocated funds, inventory, shipping and labor costs of disbursement are dramatically reduced.
- Teen cards controlled by parents :
With a prepaid card issued to teenagers but managed by parents, this mutually beneficial option gives both parties freedom and control respectively. Parents are able to load the card at their discretion and monitor how their child is spending the money. Because funds can be loaded remotely (either online, over the phone, or automatic transfers) there is added convenience and security in case of emergencies. Parents can also restrict the cards to be used only at places they would like their children to go to.
- Commercial prepaid cards for employers/employees :
Helping small businesses manage business-related payments, commercial prepaid cards, unlike credit cards, are available to both employer and employee. With card management websites, employers can tailor cards to ensure projects stay on budget and control the type of purchases that the employees can make. Employees don’t have to pay upfront or spend company time on expense reports. Commercial prepaid cards work very well for small employers/businesses that cannot get commercial credit cards or those who do not want their credit history be tarnished because of unscrupulous use by a vagrant employee.
- Travel/Forex cards :
Travel and Foreign Exchange (Forex) cards reduce your exposure to fraud and does not impact your credit history if lost or misused abroad. With Travel cards, you don’t have to exchange cash or traveler’s checks to foreign currency; saving you time and risk of carrying physical money. Forex prepaid cards can be directly loaded in the currency of your destination country which is not possible with a checking account (debit card) or a credit card.
- Government fund disbursement :
Government prepaid fund disbursement significantly reduces costs because it doesn’t require printing, posting or handling of checks. Processed payments are deposited directly onto the Government issued card, reducing clerical error, lost postage and mail fraud.
- FSA/HSA accounts :Flexible Spending and Health Savings accounts can be used to pay for qualified medical expenses at any time without federal tax liability or penalty. Patients can receive needed care without submitting claims or waiting for approval of benefits. Because consumers are more responsible for their own health care choices, it saves them time and insurance companies’ administrative and customer service costs.
- Transit cards :
Transit cards are much more efficient from the now obsolete token payment process. Not only does the prepaid card heavily reduces cost of minting and storing tokens, it gives passengers options to buy transit packages or pre-purchase rides without having to collect and carry loose tokens. Prepaid transit cards can be easily bought at a kiosk which is not possible for credit cards yet.
- Payroll cards/Sales commission/Incentive card :
Prepaid cards for employees are an efficient method for wages, compensation and bonus payments. Employers can easily load Payroll cards for payment of services, travel expenses or commission. Like Government distribution, Payroll cards reduce the cost of cutting checks. It’s also convenient for employees because they have access to their money immediately after deposit. Such cards are very useful for adhoc payments of any kind where the payer does not have payee’s bank account or if the payee does not want to share his bank account information for security reasons.
- Remote check deposit :
Remote check deposits are beneficial because it allows companies to deposit checks from their computer rather than having to go to the bank. This eliminates travel expense, reduces admin and paperwork, and allows you to consolidate bank relationships, as well as, have speedier access to deposited funds. Looking at the potential of prepaid cards, Visa in 2012 announced a service, Spyke, which allows all Visa prepaid card holders to deposit a check by taking its picture from their smartphone.
The continued expansion of prepaid options has evolved the payment industry by reducing time and cost, while also, increasing convenience and efficiency in unique ways. Prepaid cards are no longer ‘just’ an alternative to credit cards and checking accounts for underbanked and unbanked.