Prepaid Cards: Your Quick Introduction

In today’s fast-paced and technologically-advanced society, doing even trivial financial transactions has become increasingly impossible without using a plastic card. Common transactions like paying for hotel reservations, renting a car, or buying groceries are now  done using a credit, debit, or prepaid card.

Of the three ingenious financial tools, prepaid cards are considered the most recent as they are the last to be introduced so far. Surprisingly, even if prepaid cards have only been in the market for a few short years, it has gotten a really warm reception and has earned quite a following.

If you are considering getting and using a prepaid card, you are not alone. Understandably, many people are also thinking of the same thing. However, just like most, you’re probably also wondering if getting a prepaid card is a good option. Read this quick introduction to help you make an educated decision.

Your Quick Introduction to Prepaid Cards

While prepaid cards look very similar to credit or debit cards, unlike the two, they are not linked to any bank account. Another distinct difference is prepaid cards have to be loaded with money first before they can be used for ATM withdrawals and purchase transactions. Prepaid cards are also known as “pay as you go cards.”

Until money has been successfully loaded onto the card, it is considered to have zero value or empty. As prepaid cards have gotten more and more popular, different types were introduced to cater to the various needs of consumers. For instance, some prepaid cards are known as general purpose reloadable cards (GPR).

General purpose reloadable cards are also considered the best alternative to bank accounts by the unbanked and the underbanked. Employee incentive cards, payroll cards, gift cards, and government benefit cards are also designed to provide an easy and straightforward system of money distribution and budgeting.

Nowadays, many government agencies have also used prepaid cards rather than direct deposits and checks. This is quite understandable as prepaid cards are easier and more convenient to use compared to checks. Once the money has been successfully loaded, it can be used right away for ATM withdrawals and purchase transactions.

Prepaid Cards: What are the Different Types?

There are different types of prepaid cards and let us examine each of them in this article:

Open-system prepaid cards

Open-system prepaid cards are typically used by established electronic payment networks and financial giants. These types of cards are easily identifiable through their logo. Open-system prepaid cards are honored by merchants that are part of its network. The monetary value of these cards is maintained by the user.

The monetary value is also not found on the card itself. It can be accessed using the unique card number that can be found on the card’s magnetic strip. Open-system prepaid cards are also issued in the name of the account or cardholder.

Closed-system prepaid cards

Closed-system prepaid cards are merchant specific. These types of cards are designed for use at merchant chains or at single merchants. The gift card is one classic example of a closed-system prepaid card. A gift card is not only closed-system, it is also non-reloadable.

A closed-system prepaid card’s monetary value is stored using a small microchip. As such, there is no external record on the card’s monetary value that can be found on any payment networks.