Decades ago, there were no plastic cards like credit, debit, or prepaid cards. Everything was paid for in cash. Fast forward to today, it’s now almost impossible to get by without using some kind of plastic cards. In fact, nowadays, people rent cards, pay for accommodations, and purchase items online using innovative financial tools like the prepaid card.
How Prepaid Cards Evolved
While there are several plastic cards now available in the market, one of them stands out because of the peerless ease and convenience it offers: the amazing prepaid card. During the Wild West era, pioneers often purchased goods at the country store and paid for their purchases as soon as they had money.
Back then, the livelihood of sharecroppers relied on the credit that was provided by landowners. Basically, back then, landowners provided food and supplies for the sharecroppers. The latter on the other hand, paid their debts through a percentage of their harvest. This became their primary set up.
Years later, some stores started to offer credit limits. Around this time, they also introduced the 90-day credit accounts. Basically, with this new set up, people can get the item, charge their purchase, and pay their dues over a 3-month period (without interest).
Over time, this type of set up led to the development of the credit cards. Credit cards work like temporary cash or borrowed money. With the credit card, users can use their cards to purchase goods and pay for services and pay at a later time. If payment is not made on the date both parties (issuer and cardholder) agreed on, interest charges are applied.
After the introduction of prepaid cards, other beneficial and innovative financial tools have been introduced including the prepaid cards. Thanks to their amazing features and awesome benefits, prepaid cards have been embraced wholeheartedly.
In fact, a Federal Reserve Payments study conducted in 2010 reported that a total of 6 billion transactions were done using prepaid cards. The total amount of the transactions was a reported $140 billion.
Over the years, prepaid card usage has increased to 20 percent, with the value of transactions increasing to as much as 22.9 percent. The data is just from years 2006 to 2009. Without doubt, prepaid cards have become quite massive over the years and have not shown any signs of slowing down.
Different Types of Prepaid Cards
Open-system. This type of prepaid card is typically associated with established financial networks. The monetary value of closed-system cards are issued in the cardholder’s name. The value is accessed by cardholders using a unique card number that’s embedded in the card’s magnetic strip.
Closed-system. This kind of prepaid card can only be used at a single merchant or a single merchant chain.
Gift cards. This type of prepaid card is considered closed-system and non-refundable. Most of the closed-system cards are also considered stored-value cards. In other words, the card’s monetary value is stored in the card itself via a small microchip. Additionally, no external record of the card’s value is available on payment networks.