Prepaid Cards

The use of prepaid cards as a payment method has grown exponentially over the past decade. This alternative form of payment eliminates the need for a bank account, because funds are connected directly to a card. Unlike other types of cards that require a credit check, income verification, or bank account, prepaid cards are more easily accessible. They serve as a substitute for traditional bank accounts, and are widely used in retail stores in the form of gift cards, e-commerce, and other platforms.  

In 2003, prepaid cards were used for 800 million transactions worth $20 billion. By 2012, more than 9 billion prepaid card transactions were made, totaling $220 billion. The number of prepaid cards being used continues to grow in the world of credit card processing, as many users embrace prepaid cards as a way of avoiding debt or bank overdraft fees. 

Millennials and Gen Xers are debt averse, and this behavior is driving prepaid cards’ popularity as a growing trend. They accounted for 80% of U.S. prepaid card users in 2013, and the number of users will continue to grow.  

Prepaid cards also cater to those with no bank account or limited access to banking services. Since so much payment processing is being done online, it is necessary to have a convenient way for people without a bank account to pay. Prepaid cards broaden payment access for these individuals, and anyone looking for alternatives to traditional banks. 

Prepaid cards offer many benefits to banks and credit card processors. They can include activation, reload, & maintenance fees, and even a per transaction fee, all of which goes to the issuing bank. Since they carry the widely-accepted Visa and MasterCard logos, merchants can process them using the same processor they use for network-branded credit or debit cards, and come with the same processing fees.  

As this segment of the market continues to grow, merchants and banks will need to continue to expand their offerings to meet demand.  

Apple Announces a P2P Service Tied to Apple Pay and iMessage

Apple recently announced the launch of a new money transfer service that will allow iPhone and iPad users to send and receive money digitally using iMessage. The new feature will be automatically included with Apple Messages in the company’s newest operating system, iOS 11, which will be available this fall.  

The money transfers will be funded with credit or debit cards, but will rely on a new feature, a virtual prepaid card called Apple Pay Cash, which will let people use the money they receive via the new money-transfer service to make Apple Pay purchases online or in stores that accept tap-and-pay transactions. 

Once launched, the service will compete with a raft of payment services, such as those from Facebook and PayPal’s Venmo, that pair P2P payments with social networking, as well as popular bank services like Chase QuickPay.  

While Apple is expected to introduce a new phone, the iPhone 8, the new OS will be compatible with phones as old as the iPhone 5s. Industry experts believe the new payment system will introduce new users to Apple Pay, particularly younger consumers who don’t have their own traditional debit or credit cards.  

This new payment option may upend traditional consumer banking habits, but the good news for credit card processing services is the funding-source requirement of using a debit or credit card. Money-transfer services backed by a debit card will be free for users, while those backed by a credit card will be hit with a 3% fee, the same as competitors. 

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