Since the introduction of currency, cash has been the most preferred way of making payments for any purchase. However, in the last few decades, alternate forms of payments have become quite popular, like debit cards, credit cards, etc. Being made out of plastic, these cards began being known as 'plastic money' Off late, some more ways of payments have emerged on the scene like mobile Wallet, digital wallet, etc. Also, plastic money has evolved into various forms. One such form of plastic currency is a prepaid card, which combines the best qualities of cards and the digital wallet.
Different types of Cards:
Despite the increase in usage, many people still don't have a clear idea as to what are the different types of cards available in the market, and what is the exact difference among them. The most common types of cards are Credit Cards, Debit Cards, and Prepaid Cards.
What are Prepaid Cards?
A prepaid card is quite like a credit or debit card, in terms of usage. It also carries a logo like VISA, MasterCard, Rupay, etc. And likewise, this card can be used for carrying out transactions and withdrawing money from ATM. But that's where the similarity ends. The first and foremost thing is that a prepaid card is not linked to any bank account. Here, you are not borrowing money from any bank. Instead, you are using your own money, which you have to load into the card before it can be used. The amount that can be used for shopping is equal to the amount, which has been pre-loaded. Once the amount is exhausted, you cannot use the card until you re-load it again.
What are Debit Cards?
Also called a Settlement Card, a debit card is linked to a user's bank account. This card can be used to do shopping, make bill payments, and withdraw money from ATM. When you use a debit card for making any payment, that amount is directly drawn from your account, and a hold is placed equal to that amount. When the concerned merchant sends the transaction details to its own bank, the funds are transferred to his account. This way, you cannot spend an amount more than the amount in your account and can control your expenses. Though some banks, offer an overdraft facility, which means, you can spend some amount over and above bank balance, but for which you have to pay some interest to the bank.
Prepaid Cards v/s Debit Cards:
Though both cards share many similarities and are easily accepted, here are some differences between the two, which are as below:
1. A debit card is linked to some bank account, while a prepaid card is not linked to any bank account. However, a prepaid card may be linked to a virtual account, through which money can be received and spent.
2. A debit card uses the money, which is lying in your bank account, while a prepaid card uses the money which has been pre-loaded into it.
3. All debit cards usually has a high monthly or annual fee attached to its usage. While some prepaid cards have a nominal annual maintenance fee.
Prepaid Cards v/s Credit Cards:
When it comes to comparing prepaid cards, and credit cards, there are many differences. While using a prepaid card is very simple, the use of a credit card is a bit complex and involves many elements.
The main motto of a prepaid Card is “Pay now, and use later”, whereas the motto of a credit card is “Use now, and pay later". The mottos themselves explain the main difference.
In a prepaid card, the customer has to load an amount and then use that money for shopping. However, in case of credit card, there is no such requirement. A person may use the card without having to worry about having money at that moment. Here, the bank pays the money to the merchant on the customer's behalf and gives the customer a grace period for the customer to make the payment, which is normally 20 days after generating the monthly statement.
Understanding Prepaid Cards:
A prepaid card gives you the freedom from cash and also, you don't have to link your card to any bank account. It allows a customer to use the money, which has been loaded into that card. Once this amount is exhausted, it can be reloaded through any Payment Gateway.
Like other cards, prepaid debit cards can also be issued by banks and branded by Visa, MasterCard, Rupay, and American Express.
Benefits of Prepaid Debit Cards:
Prepaid cards are very useful for people who have to travel with a lot of cash. Some specific benefits are:
• A prepaid card is a very useful alternative to carrying cash. Travelling with a large amount of cash can be very risky, but this is not the case with a prepaid card is quite easy. A person may load any amount in his prepaid card and carry the card easily in his wallet.
• With cash, there is a risk of money getting lost or stolen. Here again, a prepaid card scores over cash. Most cards come with consumer protection plans. So, customer can easily block the card and prevent its misuse.
• Prepaid cards is quite useful for students, especially in school, who don't have access to the debit card linked to any bank account or don't have a credit card.
• A prepaid debit card may also be used for making online purchases.
• While using prepaid card, customers get additional benefits in terms of reward points, which is not the case while making payment in cash.
Conclusion:
These days' prepaid cards are becoming a very popular method of making payments, as they offer consumers and businesses a variety of benefits. What makes using a prepaid card so much easier is it's not mandatory to have a bank account. These cards can be loaded and used at retail outlets, online stores, for various recharge plans, etc. They act as wallets, they can receive money from any source and can be used as and when required. This is the reason that they are also called 'stored value cards”.
