Could customised prepaid cards be right for your customers?
What are prepaid cards?
A prepaid card is a card used to conveniently pay for goods. A consumer can buy a card with money loaded on it, and they can then use the card to spend up to that amount. A prepaid card might also be referred to as a “prepaid debit card”, or a “stored-value card”. Prepaid cards can be bought at many different stores and online, sometimes that might be a digital bank.
Most prepaid cards offer many of the same features as a checking account – customers can pay bills, receive direct deposits, transfer money, withdraw funds at ATMs and deposit cash. But prepaid cards come with a number of fees, such as a monthly fee or reload fee.
Prepaid cards vs debit cards
A prepaid card is essentially a type of debit card. The distinct difference between the two however is that a customer can only spend money that has been previously loaded onto the card, meaning there is no credit facility attached and no option to borrow money from the provider. It’s sometimes easier to think of a prepaid debit card as a “pay-as-you-go” debit card.
Debit cards traditionally offer overdraft facilities, meaning the amount available can be more than the funds available in the actual account might be different. Whereas prepaid cards only have the amount available on them – not a penny more.
Prepaid debit cards are a good alternative to a traditional checking account. They’re also a useful budgeting tool if customers need to control their spending or when they would like their children to have their own cards to learn how to manage money.
Prepaid cards vs credit cards vs secured credit cards
Prepaid cards are very different from credit cards. When a customer uses a credit card, they are borrowing money. Generally, when they use a prepaid card, they are spending money they have already loaded onto the card in advance.
A secured credit card works in the same way as a traditional credit card, although there is one main difference: a cash deposit is paid upfront to guarantee the credit line. This direct deposit – which in some ways could be considered an activation fee – acts as collateral on the account and acts as financial protection to the card issuer in the event of the cardholder not making payments.
Most types of credit cards typically operate with signature purchases, meaning rather than inputting a PIN code, a customer will have to sign to confirm the transaction.
How do prepaid cards work?
When getting a prepaid card, customers load it with money when they first buy and then top it up – usually with reload fees – when it runs out, just as they would with a pay-as-you-go phone. Unlike a credit card, as outlined above, they can’t run up debt on it and won’t be credit-checked during the application process.
For this reason, customers can have as many prepaid cards as they like in their wallets.
Typically, they can be topped up online, by bank transfer, or in-store (participating banks and shops). With prepaid cards typically being issued online, it’s probably best that they are also topped up online, for ease and convenience for the customers.
Who can issue prepaid cards?
An issuer processor, such as Carta Worldwide, would be involved in the issuing of a prepaid card on behalf of a financial institution or fintech. When customers apply for a prepaid card, they will go through all of the necessary legal and logistical checks needed to get that card sent out to the customer, allowing them to commence spending as soon as possible.
The financial institution will take all of the information from the customer, passing the parts that are needed to the issuer processor and their partners to get the card printed and issued.
Can they be issued virtually and physically?
Prepaid cards are issued both virtually and physically. There are still some people who crave the feeling of a physical object when spending money, meaning a physical card is necessary.
However, it’s not always the way nowadays, as virtual cards are a possibility. They have risen to prominence following the introduction of digital banking platforms and the use of digital/virtual wallets. Just like a customer would use a debit or credit card in their mobile wallet, a prepaid card can sit in their collection too, ready to be spent in-store or online.
What are the advantages of prepaid cards for customers
Single or multi-use
Both single and multi-use options are available as prepaid cards, with the most common single-use option being a gift card. If customers are buying as a present for a loved one, it tends to be a single or multi-use gift card, meaning, once the amount has been spent, the card can be discarded.
Multi-use prepaid cards are becoming more and more popular as there is no need for a credit check, meaning not having a good credit history or a bank account isn’t a problem.
The ability to customise prepaid cards is a great way of attracting customers. It’s become more common for customers to want to add their own pictures or images to the front of the card. By offering this option, you’ll be appealing to a whole new demographic who are looking for something that is “aesthetically pleasing” – which is most likely to be a younger audience.
Issue a card instantly
Consumers today require things to be completed with the click of a button, and as quick as possible. Luckily, with tech advancements and the right partnerships, prepaid cards can be issued just as quickly as a credit or debit card.
If it’s a virtual prepaid card, then the process will be even quicker due to the speed of an issuer processor and without the need for paper checks.
Monitor card activity
With a prepaid card usually being on behalf of a financial institution, consumers will typically be able to monitor their card activity on a mobile app or online. This constant ability to view transactions and spending is a key consideration for customers as they look for alternative ways to spend and/or gift funds.
Control over spending and just-in-time funding
As the prepaid card holds only a certain amount of funds, it can help customers control their spending and even budget too. It can be topped up at the beginning of the month and become a way of monitoring their outgoings for the next 30 days. Just-in-time funding is important for consumers too as they require control to authorise and add funds to cards in real time.
No issues with overspending
As mentioned above, a prepaid card removes the risk of spending over the available amount. For some customers, this will help with budgeting and making sure that finances are kept in check.
For institutions, prepaid cards are relatively risk-free as customers can only upload the funds they have available, nothing more. Then, once these funds are gone, there is no option to go over the limit – the only way to continue is to upload again.
Prepaid cards are a great way to engage with an entirely different customer. They offer a convenient and safe way of making purchases, whether it’s for the customer themselves or for someone else. The level of customisation helps to make them a valuable asset for fintech companies.
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