Debit cards vs. prepaid cards: key differences

28 April 2017

The “readies” are gradually replaced by e-money. Why risk cash, when it is much easier to use “plastic”? Among the plastic cards “going a bomb”, debit cards are acquired with unfailing regularity. However, the relentless competition of banking institutions leads to the need for constant expansion of the proposed products, allowing the client to be presented quite a varied selection. Currently, many banks offer so-called “prepaid card”. And what is the essential difference between debit cards and prepaid cards? It is necessary to make it loud and simple…

Debit cards: key banking trend

According to statistics, debit cards or, as they are called, settlement and/or payroll cards, are requested most often. A debit card is a convenient and modern replacement of paper money. It is a kind of electronic key to the cardholder’s bank account. However, nothing is perfect in the world: there are pros and cons of debit cards, which are worth mentioning.

Debit cards: what accounts for their popularity?

Ease of use. There is no need to carry a suitcase full of money, the ability to receive card statements and keep a record of transactions.

Geography of payments. Accepted worldwide, as well as purchase payment through the Internet. Not necessarily to have a card with the currency valid in the host country, it is converted automatically.

Deposit. Quick and interest-free funding a bank account while traveling in another city or country.

Bonus. Discounts and special offers from bank’s partners (shops, restaurants, etc.).

…And icing on the cake – acquisition of income. When using a profitable card (a kind of debit card), an additional revenue as interest is provided (5-10% per annum on the average monthly card balance, depending on the bank).

Not all debit cards equally profitable

Additional commission expenses. Annual card service, commission for over-the-counter withdrawal / ATM cash withdrawal in other banks.

Intraday limit. A limit on the cash withdrawals within a day.

Security. Lower level of fraud protection.

Deposit Insurance Program. This program, applied to deposits, does not cover debit cards.

Even though the accruing interest for deposited money is enough to cover all expenses on card service, an additional income using debit cards is unlikely to succeed. However, it is a lucky strike to get a “free” card, i.e. it will earn its keep. Taking into account the various discounts provided by partners of the issuing bank, it allows also to save on purchases.

Prepaid cards: money up front!

So, what kind of “dish” banks serve under the “sauce” of prepaid cards?

In pursuit of new clients, prepaid cards are far cry from debit cards already at the stage of their classification, among which are the following:

Standard cards (on physical media) used on a par with debit cards.

Virtual cards (without physical media) to load funds for online payments;

Gift cards are an analogue of gift certificates, but more attractive to the recipient. Accepted anywhere, where cashless payment is provided.

Prepaid cards: key difference.

The stark comparison of payment instrument to the other “plastic” is the following:

Instant issue. As a rule, a prepaid card is acquired for a single purchase, as a gift or for an urgent trip abroad.

Anonymity. Card’s strong point. Card request is possible upon presentation of the passport or anonymously (nominal in this case is limited, and it is impossible to withdraw cash). It can be transferred to third parties, anonymity of transactions is provided.

Not connected to a bank account. Even the most experienced financial fraudster can profit only with the card balance, at the outside.

No age restrictions. The prepaid card can be issued and handed to a child of any age.

Game over. The expiration date terminates both the card and fund balance, as well as the impossibility of re-issuing the prepaid card and its blockage in the event of loss.

As a whole ring, a prepaid card is a convenient bank and non-bank instrument for one-time purchase or in conditions, where there is simply no way to wait for card connected to the bank account.

The variety of “plastic” in consumers’ wallets is explained by nicety in matters of their income and expenses. That is why it is so important to own cards for savings, credits, trips abroad, shopping and so on. Just good to be financially savvy person and understand what is more beneficial in every specific situation.

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