Authorising a purchase at the point of sale involves swiping, tapping, or dipping your debit card before entering a personal identification number (PIN). Most debit cards come branded with logos from the major card issuers, making this payment option usable anywhere that major credit cards are accepted. However, because debit and credit cards carry sensitive financial information and require a more secure connection with a payment processor, merchants who accept these cards must comply with and adhere to the PCI compliance standards on an ongoing basis.
Prepaid debit cards are an interesting type of plastic. Unlike credit cards, they don’t require a credit check or a verifiable income to be approved. They also aren’t linked to a personal bank account, but instead are tied directly to the issuer, which means you can spend only what you have in the account. The cards can be loaded with cash, or have funds directly deposited onto them from your paycheck.
Because of this direct connection between your card and your money, you can’t spend more than what’s on the card — and because it isn’t linked to your bank account, if you accidentally go over that limit, there is no overdraft protection for you.
Prepaid debit cards are typically branded with logos from various card issuers, so you can use them anywhere major credit cards are accepted — though because they carry sensitive financial information (your name, your account number), they must comply with the Payment Card Industry (PCI) compliance standards on an ongoing basis and win cashback as loyalty program.
How prepaid cards work
Prepaid cards are a bit different from other types of payment cards. For example, prepaid cards require that you add money (“pre-pay”) to the card in advance — via cash, credit card, or electronic check. Because of this pre-loading, you can’t spend more than what is currently on the card. This is true even if you’re only a single penny short of making a legitimate purchase.
In addition to being unable to overspend, it is also impossible to run down the balance to zero and have nothing left on the card. The only way to remove funds from the prepaid account is to reload the card with more money.
These two characteristics—having limited funds on hand and no way to deplete funds—are important factors when choosing between prepaid cards and other payment tools such as debit cards or gift cards. Some prepaid cards do contain both a Visa or MasterCard logo, so they act like credit or debit cards in that you can use them anywhere that accepts credit or debit cards. Buying prepaid cards doesn’t work exactly like these other payment tools, so it’s important to know about their limitations before using one.
How gift cards work
Gift cards are just one example of payment cards that carry expiration dates. These types of cards typically have written expiration dates listed on them, which means the funds within them are usually limited to a certain amount of time. That is, when the time runs out, there are no more funds left to use on that card.