Payment Terms Defined: Prepaid Cards

Think of prepaid cards in terms of stored value. In other words, they are secured cards that are linked to an established cash balance that is checked by the issuing bank  

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Payment Terms Defined: Prepaid Cards

May 31, 2017

Payment Terms Defined: Prepaid Cards

Think of prepaid cards in terms of stored value. In other words, they are secured cards that are linked to an established cash balance that is checked by the issuing bank  during the transaction authorization process to make sure it is adequate to cover the transaction. A merchant account makes it possible for your business to accept prepaid cards along with credit and debit cards and other forms of electronic payment.

The life cycle of a prepaid card begins when funds are loaded into an account with the issuer. At the point of sale, the cardholder hands over the card in payment and the transaction amount is deducted from the available balance. Most prepaid cards are reloadable, which means they can be used indefinitely.

There are two basic categories of prepaid cards:

  1. Closed-loop (single-purpose) prepaid cards can be used only at a specific merchant’s locations or for a specific purpose. This category includes store-branded gift cards and prepaid telephone cards. Many merchant account providers, including TSYS Merchant SolutionsSM, offer gift and loyalty card programs to their clients.
  2. Open-loop (multi-purpose) prepaid cards carry the logo of one of the major credit card networks — Visa® or MasterCard®, for example — and can be spent wherever that particular brand is accepted. They can also be used to make ATM withdrawals as well as for other banking activities. Included in this category are payroll and EBT (electronic benefit transfer) cards that are used to distribute FSA (flexible spending account), unemployment, Social Security and food assistance benefits.

Prepaid cards offer many of the benefits of a credit card without the risk of overspending or accruing interest charges. For this reason, the cards now comprise the fastest-growing non-cash payment type in the United States.

As NASDAQ.com recently reported, gift cards have become a mainstream financial instrument, and are among the top gift choices for both givers and receivers. A survey conducted in 2015 revealed that nearly half of all consumers said they had used a gift card in the previous year.

From a merchant’s perspective, prepaid cards have many applications. Beyond being able to accept the open-loop version in payment for merchandise or services, closed-loop gift and loyalty cards can be an invaluable tool for promoting your business, expanding your customer base and growing your operation beyond its current space.

The bottom line on prepaid cards is that they’re catching on with all types of consumers and they’re here to stay. To claim your share of this lucrative market, contact us online or at +1.800.228.2443 to discuss whether they’re a good option for your business.

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