Prepaid debit cards work almost like a combination of a credit card and a checking account. They are issued by a bank holding company and branded by major credit card companies, such as Visa, MasterCard, Discover or American Express.
Money is loaded on to the prepaid card much like a gift card. The card can then be used like a credit card and is accepted most places where credit cards are accepted. While the usage part is like a credit card, the financial side is like a checking account. Money spent is deducted from the total balance. There is no ability to spend beyond this balance.
Prepaid Debit Cards
Prepaid debit cards can be a convenient solution when a credit card is required for various transactions – especially for people who don’t have access to banking services, lack knowledge or trust in how banking works, or are locked out of the banking system due to poor credit scores. They are also a popular option for gift-giving because of protection in the case of loss or theft. In fact, they are replacing cash as a preferred gift for these reasons. Cash cannot be spent online, but money in prepaid debit cards can. And, in contrast to gift cards, prepaid debit cards can be used at an ATM to retrieve cash.
Prepaid debit cards are one of the fastest growing niches in the financial sector. The number of cards sold is expected to grow 22% annually from 2015 to 2020, according to projections by the Consumer Financial Protection Bureau. The total dollar value loaded onto these prepaid cards is expected to nearly double to $116 billion by 2020.
A large number of Americans do not participate in the banking system for various reasons. A prepaid debit card is a tentative step toward enabling them to join it.