Open-loop prepaid cards are an excellent tool to manage a family budget because a set amount of funds are loaded in advance of the purchase. Consumers can exert control over their spending and avoid interest charges and overdraft fees. According to a Leger survey, 40% of Canadian consumers would like a payment card with a set spending limit. 82% of Canadians want a payment card where they would not be charged those fees.
Open-Loop Versus Closed-Loop Prepaid Payments
A closed-loop prepaid card generally does not have a network logo on it (American Express, Mastercard, UnionPay or Visa). You can only use these cards at certain locations such as a specific store or group of stores for a gift card, or a single public transportation system for a transit card.
An open-loop prepaid card is a card with a network logo on it (American Express, Mastercard, UnionPay or Visa) that can be used anywhere the card network is accepted, including online. Open-loop prepaid cards can be replaced if lost or stolen per the card network’s zero liability policies
How do Open-Loop Prepaid Cards Work?
Single-Load versus Reloadable Open-Loop Prepaid Cards
Single-load, open-loop prepaid cards are purchased and loaded with funds for a one-time use. The most common examples include an open-loop gift card or a rebate or promotional card. Once the funds are spent the card is discarded. No consumer information is collected to purchase or use a single-use, open-loop prepaid card.
Reloadable open-loop prepaid cards are a financial tool that can be purchased and loaded with funds on a recurring basis. Funds can be reloaded through a direct deposit, online transfer or “top-up” of cash at a retail location. Reloadable open-loop prepaid cards require registration of personal information from consumers to adhere to banking regulations. Registering a card also ensures that the card can be replaced if lost or stolen per the card network’s zero liability policies.
What are the Benefits of Open-Loop Prepaid Cards?
For consumers, open-loop prepaid cards allow for better budget control and the avoidance of debt, interest and overdraft charges. According to a Leger study 15% of Canadians rarely or never stick to a budget and 12% never even set budgets. In addition, 30% find it difficult to track their spending with their credit and debit cards.
Open-loop prepaid cards can be used by anyone, regardless of credit history, and a bank account is not required. And the cards are more secure than cash.
Businesses improve efficiencies, reduce fraud and experience cost savings. They can easily pay employees their expenses or commission payments in a faster and more cost-effective manner with greater control. Open-loop prepaid cards can replace traditional company credit cards and direct deposits for immediate commission payments, expense reimbursements, or petty cash in a form that is easier for the end user to use at the point-of-sale. They also allow for more immediate expense tracking.
The Federal and Provincial governments also save time, money, and reduce fraud by issuing payments on open-loop prepaid cards versus cheques. According to a recent Mastercard Canada study, 86% of Canadian government benefit cheque recipients are aware that direct deposit is an option, yet, depending on the program, up to half of recipients are still choosing to receive benefits by cheque.