Prepaid debit cards
Prepaid debit cards, also called reloadable debit cards, appeal to a variety of users. The primary market for prepaid cards are unbanked people, that is, people who do not use banks or credit unions for their financial transactions, possibly because of poor credit ratings.
The advantages of prepaid debit cards include being safer than carrying cash, worldwide functionality due to Visa and MasterCard merchant acceptance, not having to worry about paying a credit card bill or going into debt, the opportunity for anyone over the age of 18 to apply and be accepted without regard to credit quality and the option to direct deposit paychecks and government benefits onto the card for free.
Some of the first companies to enter this market were: MiCash, RushCard and Netspend, who gained high market share as a result of being first to market. However, since 1999, there have been several new providers, such as TransCash, 247card and iKobo, that offer a number of other benefits, such as money remittance services, card-to-card transfers, and the ability to apply without a social security number.
As of 2013, several city governments (including Oakland, California and Chicago, Illinois) are now offering prepaid debit cards, either as part of a municipal ID card (for persons such as undocumented immigrants, who are unable to obtain a state driver’s license or DMV ID card) in the case of Oakland, or in conjunction with a prepaid transit pass (Chicago). These cards have been heavily criticizedfor their higher-than-average fees, including some (such as a flat fee added on to every purchase made with the card) that similar products offered by Green Dot and American Express do not have.
The U.S. federal government uses prepaid debit cards to make benefits payments to people who do not have bank accounts. In 2008, the U.S. Treasury Department paired with Comerica Bank to offer the Direct Express Debit MasterCard prepaid debit card.
In July 2013, the Association of Government Accountants released a report on government use of prepaid cards, concluding that such programs offer a number of advantages to governments and those who receive payments on a prepaid card rather than by check. The prepaid card programs benefit payments largely for cost savings they offer and provide easier access to cash for recipients, as well as increased security. The report also advises that governments should consider replacing any remaining cheque-based payments with prepaid card programs in order to realize substantial savings for taxpayers, as well as benefits for payees.
Consumer protections vary, depending on the network used. Visa and MasterCard, for instance, prohibit minimum and maximum purchase sizes, surcharges, and arbitrary security procedures on the part of merchants. Merchants are usually charged higher transaction fees for credit transactions, since debit network transactions are less likely to be fraudulent. This may lead them to “steer” customers to debit transactions. Consumers disputing charges may find it easier to do so with a credit card, since the money will not immediately leave their control. Fraudulent charges on a debit card can also cause problems with a checking account because the money is withdrawn immediately and may thus result in an overdraft or bounced checks. In some cases debit card-issuing banks will promptly refund any disputed charges until the matter can be settled, and in some jurisdictions the consumer liability for unauthorized charges is the same for both debit and credit cards.
In some countries, like India and Sweden, the consumer protection is the same regardless of the network used. Some banks set minimum and maximum purchase sizes, mostly for online-only cards. However, this has nothing to do with the card networks, but rather with the bank’s judgement of the person’s age and credit records. Any fees that the customers have to pay to the bank are the same regardless of whether the transaction is conducted as a credit or as a debit transaction, so there is no advantage for the customers to choose one transaction mode over another. Shops may add surcharges to the price of the goods or services in accordance with laws allowing them to do so. Banks consider the purchases as having been made at the moment when the card was swiped, regardless of when the purchase settlement was made. Regardless of which transaction type was used, the purchase may result in an overdraft because the money is considered to have left the account at the moment of the card swiping.
If you would like more information about our credit card programs, prepaid cards or debit cards – feel free to contact us, we would be glad to assist you in any way we can.
Hallmark Prepaid is one of the pioneers in the co-branded card program industry providing turnkey solutions, cobranded prepaid cards, cobranded debit cards, cobranded credit cards, white label programs and payment platforms to fulfill the expanding and ever changing needs of both consumers and businesses. We offer both embossed and un-embossed cobranded cards which are accepted at almost 30 million ATM locations worldwide as well as a large variety of retail outlets and online merchants.