Spotlight on Merchant Services: Prepaid Cards

Say the word “plastic” to most merchants, and their first association will probably be with credit or debit cards. But there’s a third kind of plastic that’s gaining in popularity: prepaid cards. Just like credit and debit cards, prepaid cards are processed by a merchant services provider as part of a merchant account agreement.

A prepaid card is a form of secured or stored-value card that is tied to a previously deposited cash balance. They are usually reloadable, and purchases are checked for approval against existing funds. Prepaid cards function most like a debit card and do not accrue interest charges.

Prepaid cards were originally intended to serve the needs of low-to-middle income consumers who either couldn’t qualify for or chose not to have a bank account or credit card; this demographic is sometimes referred to as unbanked. Statistically, the 2009 National Survey of the Unbanked by the Federal Deposit Insurance Corporation (FDIC) reported that 9 million American households (almost 8%) fall into this category.

Today, however, the appeal of prepaid cards has expanded well beyond the ranks of the unbanked as the cards themselves have diversified. For example, the original open-loop prepaid card featuring the logo of one of the major credit card associations can be spent wherever that logo is accepted or used to withdraw cash from ATMS and other banking activities.

Another option is the closed-loop prepaid card, which many merchants use to create loyalty or gift card programs that are unique to their business. Since cardholders tend to spend more than the value loaded on the card, these programs can deliver increased sales and profitability for merchants.

Meanwhile, both MasterCard® and Visa® are investing millions of dollars in prepaid card technology and marketing the cards to corporations, governments and universities. Some major retailers process their payroll on prepaid cards, and state and federal governments use them for electronic benefits transfer (EBT) for programs like Social Security, food assistance and unemployment benefits.

Adding prepaid cards to your merchant services mix is a wise move. One recent prediction by the Mercator Advisory Group is that the total dollars loaded onto prepaid cards will catapult to $672 billion over the next three years — a figure that’s more than double the $330 billion loaded in 2009!

At Merchant Express®, we want our merchants to claim their share of the prepaid card market. That’s why we offer prepaid cards as a merchant services option that is not only a potential source of new revenue but likely to deliver new customers as well. As an added bonus, processing fees for prepaid cards are lower than for traditional credit cards. That means you save money every time you swipe a prepaid card through your terminal!

Talk to a Merchant Express consultant today to learn more about prepaid cards. While you’re at it, be sure to ask about all our credit card processing products and merchant services to find out which can best meet your business requirements.