Payment card is one of the most popular payment instruments. You can hardly find a person who never used it or never heard about it. And one common question people have is what payment card to choose and where to order it. If a decade ago payment cards classification was rather simple, you were choosing between “credit” and “debit” cards, now there are lots of very interesting and useful “hybrids”. Prepaid card is of particular interest. It is a very good instrument for those who do not qualify for credit cards because of bad credit report, and is particularly reasonable for many business purposes as well.
Open System Prepaid Cards
Generally, there are two types of prepaid cards: related to closed (or semi-closed) systems, and open systems prepaid cards. Merchant gift cards, which replaced traditional gift certificates, are a good example of closed system cards. They are accepted only at a single merchant. Semi-closed system prepaid cards (mall cards, university cards) are issued by a third party, rather than the retailer who accepts the card.
Open system prepaid cards (sometimes referred to as network branded prepaid cards) are endorsed by a retail electronic payments network such as Visa, Visa Electron, MasterCard or Maestro, and are accepted anywhere where debit cards with the same logo can be used.
They are sometimes marketed as “prepaid debit cards” or instead “prepaid credit cards”, which is explained by two main features of such cards. It is a debit card in the first turn, as no credit is offered and you can spend only what you prepaid to your card. On the other hand, most prepaid cards can be used in many similar situations as traditional credit cards.
Prepaid cards are different from Charge cards that always require security deposit and have a specific settlement mechanism between the card’s holder and the issuing bank. They are also not the same as Stored-Value cards, as their value is not physically stored on the card and the card number only refers the merchant to the central database for information on the card’s balance.
How You Can Use a Prepaid Card
Prepaid cards is a very flexible payment instrument, which you can use for:
- withdrawal of cash from ATM;
- purchases anywhere, where you see the according logo of Visa, MasterCard or Maestro is accepted;
- purchases on the Internet; prepaid cards have a verification number, CVV – a security number on the back of credit cards that you need to make online payment;
- online booking and reservations of tickets, hotel, etc.;
- recurrent payments;
- subject to certain conditions, prepaid cards are accepted by PayPal, Ebay, Google AdSense.
5 Benefits of Prepaid Payment Cards
Same as with any debit cards you get a safe alternative to keeping your cash (in particular, when traveling), plus you are in full control of your spending (since no credit line is provided).
Comparing to regular credit cards you get:
- No credit report verification – you can get a prepaid card even with bad credit;
- No risk of incurring into debt – you cannot spend more than you deposited on the card, so you will not accumulate debt and interest charges to pay.
- Availability of online shopping, tickets and hotel reservations, same as with credit cards.
- Security – most prepaid cards come with built-in security and protection against unauthorized use. Same as with regular credit cards, using the chargeback mechanism you may be able to claim back any transactions that you didn’t make.
Sure, There Are Disadvantages
- No credit history — prepaid card issuers do not report your payments to the credit bureaus, so you cannot build your credit history by using a prepaid card. Unless it is a special customized “credit builder” card, which is a rather rare thing to meet and you should check specifically if this feature included.
- You cannot overdraft your prepaid card. Your spending limit is strictly limited with what you have put on the card.
- Unlike with regular credit cards, you cannot rent a car with the prepaid card or use it as a security deposit in hotels, or in any other place where the provider wants to be assured for a case of damage of his property.
- Some businesses involving payment of monthly subscriptions (for example, on the Internet) may refuse dealing with prepaid cards as they are afraid there will be no money on the card when it’s time to pay next monthly fee.
- Expenses associated with obtaining and maintenance of this type of cards are sometimes estimated as more expensive. However, this aspect is subject to separate consideration in each particular case.
Clarify These Points Before Applying for a Prepaid Card
Multiple branded prepaid cards are issued by different providers (where the word “prepaid” is not even present), each one may offer very different terms and conditions. Therefore, it’s important to know the key features of prepaid cards and clarify all aspects with the proposed card issuer in advance:
Whether the security deposit is required. Cards like Visa Gold, Visa Platinum, MasterCard Gold and others often require security deposit, even if they are offered as debit cards.
If the card is re-loadable or disposable. Disposable cards have certain purchase value and are valid only until you spend that amount of money. Re-loadable cards are more like regular credit or debit cards with the lifetime for several years and which you can re-load from time to time according to your needs. Reloadable prepaid cards are often used for recurring payments.
Will it be a personal card (in your name) or a corporate card (in company name). If you need a prepaid card for business purposes, you can have it issued on your company name.
Will it be attached directly to your main bank account, or a special sub-account. The latter option is more secure as you will be transferring the funds designated for the card to that special sub-account and only those will be available to spend with your card.
What are the fees and expenses associated with maintenance of your prepaid card. Most of the time, these are mainly fees for replenishment, ATM withdrawals/purchases and monthly fees.
Check if you can use it for online purchases. Most prepaid cards are suitable for this purpose, but may require preliminary activation of this feature with the card issuer. To ensure there are no problems with online payments using a prepaid card, you must have a verifiable name and address associated with the card. Most merchants want your name and billing address to match the name and address you have on file with your card issuer.
For re-loadable cards, what are the ways to load funds on the card – by cash at a bank branch, Post Office or at Payzone or PayPoint terminals, by credit card or bank transfer. Not all prepaid providers offer all of these loading options.
Ask what are the loading and spending limits! Prepaid cards providers may (and usually do) establish certain limits of how much and how often you can load funds to your card and spend them. There may also be set a minimum and/or maximum amount for each purchase.
Prepaid Cards for PayPal, E-Bay, Google AdSense
Now, this is a topic that generates tons of discussions. Generally, PayPal does not recommend adding prepaid cards to your PayPal account. However, certain types of prepaid cards will be accepted. The main requirement to the card is to be available for address verification systems, which PayPal uses to validate credit cards. You must have the card registered in your name. Make sure you also have your card registered for use on the Internet with the card issuer (if this feature is not active by default). Remember to register a new account on PayPal with the same address details that you have for your prepaid card. Otherwise you may have problems with registration or verification of your account. It is recommended to use a prepaid card that allows online viewing of transactions, so that you can see a PayPal test charge and a 4-digit verification code.
You will meet similar requirements for using prepaid cards with E-Bay, Google AdSense and other online services accepting payments by cards.
Anonymous Prepaid Cards (a Perfect Hook for Scams)
Anonymous prepaid card is a tempting vehicle for many people wishing to keep confidentiality and protect themselves from potential ID thefts.
Completely anonymous prepaid cards still exist, but they are more like gift cards, having certain purchase value of US$ 20-500 and they are not re-loadable. You can use them for online purchases, where your real name and address information are not required. Sometimes they are offered as virtual cards, to be used only for purchases on the Internet, but not available for withdrawal of cash at ATMs. Obviously, you will not be able to use them in serious places like PayPal or Google AdSense.
In all other cases, even if there is no name on the plastic, it still doesn’t mean the card is anonymous. In any case, the cardholder has been identified and known to the issuer of the card.
We would be very suspicious of organizations, which offer anonymous prepaid cards with unlimited load amounts without some form of ID check.
So, What Card Will Work for My Business?
Considering the above said, a decent prepaid card for business should be re-loadable, including by means of international wire transfer; requiring no security deposit; with high loading and spending limits; issued in your name or in the company name, but with a particular holder name and address associated with the card; attached to a separate account with no access to the main bank account of the company; having online access to view all payment transactions.
Where to Get One?
There are a lot of intermediary prepaid card providers on the Internet, readily assisting you by email, but whose name you’ve never heard before and whose phones never answer. You have no idea who these guys are, but you might be very tempted by their terms and conditions. In particular, if they don’t ask for much ID check. Without mentioning scams, for which this area is a fertile ground, you simply risk to get slow, bad quality service and unreasonable fees and charges. You also never know if you will be able to renew the card for another term when the first one is expired. A smaller unknown provider can simply wind up his business one day because of economical reasons. You will get left with no card and with some of the most needed services cut off (for example, if they were based on recurring charges on your prepaid card).
At the same time, many well-established offshore and onshore banks working with international clientele offer a very good choice of prepaid card products.
It is always advisable to order your prepaid card directly from the card issuer. And it is highly recommended that this issuer would be a company or a bank with an established name, or the one that you can verify its existence, whether it holds a proper license and where it is located.
This is a pretty solid piece of information we gave you about prepaid cards. Questions and comments are appreciated!