Credit Card Processing and the Prepaid Card

Credit card processing is a broad term that encompasses several electronic payment card categories: credit cards of all stripes (“plain vanilla”, rewards, corporate), debit cards (signature and PIN), EBT (electronic benefits transfer), gift and loyalty cards. Another option that’s growing in popularity is the prepaid card.

A prepaid card is actually a secured card because it is tied to a previously-deposited cash balance. Also referred to as a stored-value card or general purpose re loadable prepaid (GPR) card, they typically carry major card association logos like Visa® or MasterCard®, and they can be used at the point of sale in the same way. Sales transactions made with a prepaid card are checked for approval against existing funds.

According to a Federal Reserve Bank of Boston TM report from 2015, increasing numbers of consumers are choosing to use GPR cards that provide services previously limited to a bank checking account. These typically include nationwide access to cash via ATMs, direct deposit of a paycheck, online account management, online bill payment and a general purpose payment card bearing a major network logo.

Prepaid users include both banked and unbanked consumers who find prepaid cards to be convenient or cost effective. The recent steady growth of prepaid cards is also due in part to credit cardholders who switched to safer, less expensive prepaid cards during the last economic recession — a move that one pundit likened to “swapping a Lamborghini for a Ford Fiesta.”

Prepaid cards offer a convenient payment vehicle for people who can’t qualify for a bank account (and the associated debit card) or a credit card account. Prepaid cards are, in effect, a mobile, card-based bank account. Some consumers use them as a budgeting tool, and parents find it convenient or instructional to load their child’s allowance onto a prepaid card. Other consumers have gone prepaid to protest exorbitant bank fees or because they’re reluctant to rack up credit card balances, and they like the fact that there’s no credit check and no minimum balance requirement. Prepaid cards also offer unbanked consumers access to online purchases and payments.

Prepaid cards are not only convenient to use, but they’re convenient to acquire as well. Most supermarkets, drug stores, Big Box stores and check-cashing services sell them. The price a consumer pays upfront goes to the company that distributes the card, which also charges fees for loading and reloading, maintenance and other services.

In fact, it’s those fees that are the main negative of prepaid cards, according to critics and consumer advocates. Besides activation and monthly fees, other typical charges include fees for ATM withdrawals, balance inquiries, paper statements, calls to customer service — even a fee for closing the account when the cardholder is fed up with all the other fees.

Whatever your personal opinion of prepaid cards, they’re here to stay. Savvy merchants will be knowledgeable of them and add them to their credit card processing repertoire. A USB Payment Processing representative can help you do just that.

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