Fintech Insights

What you need to know about stored value cards

August 05, 2019

Stored-value cards—also known as prepaid cards—are functionally similar to debit cards. The difference is how they’re funded: stored value cards are funded in advance, rather than tied directly to a consumer’s bank account. The convenience, security and flexibility of stored-value cards make them a popular way for consumers to pay.

Stored value cards represent a relatively small, yet vitally important slice of electronic payments worldwide. Worldpay’s 2018 Global Payments Report estimates that prepaid cards accounted for 2% of eCommerce and 1% of all point of sale spend globally. That may sound small until you consider that the US Department of Commerce estimates total global retail sales will exceed US$26 trillion in 2019.

Stored value cards are popular with consumers, making them important to understand and consider as part of your marketing mix. Here’s a quick overview of what you need to know about stored value cards today.

What are the major types of stored value cards?

Stored value/prepaid cards can be thought of in two major categories: open loop and closed loop.

Open loop prepaid cards are most like credit or debit cards because they’re accepted at the same merchants. They’re often issued in partnership with major card brand networks like Visa or Mastercard, or in the case of Discover and American Express, issued by the card brands themselves.

Open loop prepaid cards are popular as gifts because can be used anywhere credit or debit cards are accepted. They’re widely available at retail locations via gift card kiosks and checkout counters. Open loop stored value cards can be purchased, transferred and used online for eCommerce purchases.

Mercator Advisory Group’s 2018 “US Open Loop Prepaid Cards Market Forecast 2017-2021” estimates that total US open loop card loads exceeded $323 billion in 2017. With 10%+ compound annual growth US open loop card loads are projected to exceed $427 billion by 2021.

Closed loop prepaid cards are different in that they can only be used at one merchant. Closed loop cards are branded with the company’s logo and sold by the company and in multi-company gift kiosks. Closed loop stored value cards can be configured for one-time fixed amounts, they can be open to reloading the balance, or they can even be linked to your customer’s bank account for ACH transfers.

Closed loop gift cards are great ways for brands to connect with new customers. They represent cost-effective marketing that help build brand awareness, drive more sales and better engage with new and existing customers. Best of all, stored value card programs are affordable for almost any size business.

What are the common uses of stored value cards?

“Stored value cards” are best known for their role as gift cards. That’s understandable—everyone loves receiving gifts, especially those that they are able to choose themselves.

But beyond gifts, stored value cards see wide use across economic sectors. Stored value cards are commonly used as transit system cards, calling cards, payroll cards, rebate cards, gift cards and cafeteria cards.

Stored value cards are used to issue government benefits like unemployment and nutritional assistance, as well as on campuses, military bases and other institutional settings. Stored value cards are even used in many payroll situations, with new FinTech innovations leading to stored value cards being used to pay employees more quickly—even daily.

Stored value cards also serve an important societal good by helping those without a credit or debit card gain access to the financial system. Prepaid cards allow those without debit and credit cards—also known as “unbanked” consumers—to make purchases where cash isn’t an option. Stored value cards provide access to online bill paying and other goods and services that all consumers need, especially as eCommerce grows to represent ever-larger shares of economic activity.

Making stored value cards work for your business

We offer gift cards and other prepaid stored value card solutions that deliver everything you need to generate new revenue, increase brand exposure and easily manage your card program.

Are you ready to learn more? Contact one of our payments experts today to learn how we can help your business accelerate revenue through optimized processing while reducing costs.