DEFINITION of 'Prepaid Cards Processor'

A company that processes transactions for prepaid payment cards. Prepaid card processors are responsible for processing transactions for prepaid credit or debit cards, gift cards, payroll cards, and other payment cards that are considered secured by the front-loading of money.

BREAKING DOWN 'Prepaid Cards Processor'

Prepaid cards allow a cardholder to conduct transactions without the use of cash, but limit the size of the transaction to the amount of money available on the card. Examples of prepaid cards include gift cards and phone cards, but can also be used in government aide programs instead of sending a periodic check. Prepaid cards are often reloadable.

Prepaid cards are secured cards, meaning that the value of the card is limited to the amount of cash that has been loaded to the card’s account. For example, a gift card may have a maximum value of $50 if only $50 has been loaded to that account at the point at which the card was activated. Requiring prepayment before activation limits the exposure of the issuing company to a precise value, unlike an unsecured card linked to a line of credit.

Prepaid card processors are unlikely to provide point-to-point encryption (P2PE) because they do not provide a direct link between the point-of-interaction, such as the card terminal at a merchant, and the processor. Instead, prepaid card processors are responsible for the payment processing component of the transaction. This requires the processor to record purchase information and manage the account balance of the prepaid card, as well as manage chargebacks, returns, and payment disputes.

Prepaid payment cards are typically more customizable than cards issued by banks and other financial institutions. This is because the needs of the organization offering the card can vary greatly. Large credit card processors, such as VISA, are frequently involved in this line of business, though smaller businesses may also provide prepaid card processing services.

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